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How to navigate premium increases for long-term care insurance

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Supporting aging parents is an extremely difficult situation that comes with both emotional and financial complications.

The cost of long-term care insurance is a prime example.

This insurance, essential for covering costs not typically included in standard health insurance or Medicare, such as nursing home stays or in-home support, can be a financial lifeline. However, it’s not without challenges, especially when faced with an unexpected premium increase.

I know this situation all too well, having purchased long-term care policies for both of my parents in 2000.

For my dad, who was 68 at the time, I purchased 5% simple inflation protection, which accrues interest only on the original benefit. By the time my dad needed in-home care starting in 2014, his daily benefit had grown from $125 to $212.50.

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Given our family history of longevity, and because my mom purchased her policy when she was a young 54 years old, we selected 5% compound inflation protection. The daily benefit with compound inflation grows quickly because the interest earns interest.

Now, with that compound inflation protection, her daily benefit has increased from $125 to $403.

But her costs have increased, too, in part because that compound inflation protection costs more. Since 2000, my mom’s long-term care insurance premium has jumped 54%, from $1,224 to $1,885 per year. Along the way, we have experienced three rate increases.

How much can long-term care insurance increase?

While rate increases can be expected, most people are shocked by how much rates can go up over the long term, specifically for policyholders who have had their policies for a decade or more. It’s not uncommon for rates to increase by 50%. However, the National Association of Insurance Commissioners has reported rate spikes as high as 500%.

For those with limited financial means, a significant premium increase can be overwhelming and devastating, often forcing people to choose between financial security and compromising their parents’ quality of life and access to quality care.

We all want what’s best for our aging parents. Here are some ways I recommend clients navigate premium increases to protect their long-term care coverage.

3 ways to handle long-term care insurance premium hikes

Halfpoint Images | Moment | Getty Images

A significant premium increase can threaten your or your parents’ financial stability, but so does not having the right insurance coverage. It’s a catch-22 that often leaves people feeling trapped. I don’t believe that people should be forced to choose between simply accepting the increase or dropping the policy.

The good news is that you have options that don’t result in an all-or-nothing choice.

As a certified financial planner professional, I often encourage my clients to start by exploring three options — accepting the rate increase, freezing benefits or adjusting policy terms.

1. Accepting the rate increase

In some situations, the best course of action is to do nothing. If your parents’ financial situation allows them to comfortably absorb the higher rate, accepting the premium increase can ensure continuous coverage without sacrificing any benefits.

From my personal experience, this was the best choice for my mother’s situation. Despite a 54% premium increase, we chose to accept the rate rather than settle for fewer policy benefits. I know all too well the cost of in-home care, as my dad had Parkinson’s disease for nine years and needed 24-hour care the last four months of his life.

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2. Freezing the benefits

If you have financial concerns about a higher premium, you may be able to eliminate or reduce the rate increase by electing to freeze your benefits. When this happens, you agree to pause the inflation protection benefit for a predetermined time frame in exchange for a lower rate. Freezing benefits helps to keep premium costs down without losing coverage altogether. It can be a good choice for parents in their early to late 80s, especially if the premium increase exceeds 20%.

Recently, I advised one of my clients to freeze their benefits when faced with a 22% premium increase since they are in their late 70s and the cost difference wasn’t a good fit for their situation. This change allowed them to maintain the current daily benefit amount but forgo future increases, helping manage costs while still providing some coverage.

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3. Finding a middle ground

Sometimes, the full premium increase isn’t manageable, but you’re not ready to freeze benefits completely. If you’re able to accept some but not all of the premium increase, it’s best to call your insurance company to negotiate your rates.

For example, if the cost is going up 15% but you can only afford 10%, discuss it with your insurer. You could uncover alternatives that an adjusted premium might offer, like a shorter benefit period, longer elimination period or reduced daily benefit amount. However, reducing daily benefits should be a last resort because it decreases the insurance payout and can increase out-of-pocket costs for your parents’ care.

Making the best long-term care insurance decisions

Age is just a number, but so is the cost of long-term care insurance. Begin by having transparent conversations with your parents and siblings, so you can work together to ensure that everyone’s needs and concerns are met. This discussion should cover everyone’s perspectives and financial considerations, especially the needs and preferences of your aging parents.

This can be a difficult conversation to navigate.

If you’re feeling stuck weighing the long-term implications of your available options, it’s important to seek guidance from a financial professional for clarity and insight. A financial expert can go over the specifics of your situation, offer tailored advice, and even suggest alternatives you might not have considered.

In the end, the decision should balance financial foresight with the care and comfort of your loved ones.

 — By Marguerita (Rita) Cheng, a certified financial planner and the CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland. She is also a member of the CNBC Financial Advisor Council.

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Personal Finance

Why fewer young adults are able to invest in homeownership

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FILE PHOTO: An “Open House” sign outside of a home in Washington, DC, US, on Sunday, Nov. 19, 2023. 

Nathan Howard | Bloomberg | Getty Images

When Maryland Governor Wes Moore was 8 years old, his mother told him she wanted to send him to military school to correct his behavior.

Yet it wasn’t until he was 13 that she finally did send him to a military school in Pennsylvania. He ran away five times in the first four days.

“That place ended up really helping me change my life,” said Moore while speaking about retirement security at a BlackRock conference in Washington, D.C., on March 12.

One obstacle — the tuition costs — prevented his mother from sending him sooner, he said.

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Moore was able to attend the school thanks to help from his grandparents, who borrowed against the home they bought when they immigrated to the U.S., to help pay for the first year’s tuition.

“They ended up sacrificing part of their American dream so I could achieve my own,” Moore said.

“That’s what housing helps provide,” Moore said. “It’s not just shelter. It’s security; it’s an investment. It’s a chance you can tap into something if an emergency happens. It’s a chance that you now have an asset that you can hold onto, and you can pass off to future generations.”

After retirement funds, housing generally represents the second-most-valuable asset people have, Moore said.

Some now less likely to own homes than in 1980

Yet achieving that homeownership status can feel unattainable to prospective first-time buyers in today’s economy.

Around 30% of young Maryland residents are thinking of leaving the state because of high housing costs, Moore said.

Both renters and homeowners across the U.S. are struggling with high housing costs, according to a 2024 report from the Joint Center for Housing Studies of Harvard University. The number of cost-burdened renters — meaning those who spend more than 30% of their income on rent and utilities — climbed to an all-time high in 2022. At the same time, millions of prospective homebuyers have been priced out by high home prices and interest rates.

Many hopeful first-time home buyers may feel that it was easier for their parents and grandparents’ generations to reach home ownership status.

Research shows those feelings are justified.

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Since 1980, median home prices have increased much faster than median household incomes, according to recent research from the Urban Institute.

Across the country, today’s 35- to 44-years olds — who are in their critical homebuying years — are less likely to be homeowners than in 1980, according to the research.

For that age cohort, the homeownership rate has dropped by more than 10% compared to 45 years ago, the Urban Institute found. Because today’s 35- to 44-year-olds are also forming households at a lower rate, that number is likely understated, according to the research.

Ultimately, that can have lasting impacts on their ability to build wealth, said Jun Zhu, a non-resident fellow at the Urban Institute’s Housing Finance Policy Center.

“When you have a house, when the house appreciates, you’re going to earn home equity,” Zhu said. “Earning home equity is actually a very important way to earn wealth.”

Those 35- to 44-year-olds who are in lower income quartiles have seen the biggest declines in homeownership compared to their peers. That is driven in part by the fact that people who are married are more likely to be homeowners, while lower-income individuals are less likely to be married.

Education is also a factor in widening the homeownership gap, according to the Urban Institute, as a smaller share of heads of households who have the lowest incomes are getting college degrees.

Racial divide in homeownership rates persists

Separate research from the National Association of Realtors also points to a racial divide with regard to housing affordability.

In 2023, the latest data available, the Black homeownership rate of 44.7% saw the greatest year-over-year increase among racial groups but was still well behind the white homeownership rate of 72.4%. Other groups fell in between, with Asians having a 63.4% and Hispanics having a 51% homeownership rate.

Strong wage growth and younger generations reaching prime home buying age contributed to the increase in Black homeownership in 2023, said Nadia Evangelou, senior economist and director of real estate research at the National Association of Realtors.

Yet the Black homeownership rate has stayed below 50% over the past decade, Evangelou said, which means most continue to rent instead of owning. That ultimately limits their ability to grow their net worth and accumulate wealth.  

Policy changes could make it easier for Americans to buy their first home. That could include providing educational opportunities for low-income households, offering down payment assistance and encouraging housing production by reducing zoning restrictions or other regulatory barriers, according to the Urban Institute.

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These big inherited IRA mistakes can shrink your windfall

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If you’ve inherited an individual retirement account, you may have big plans for the balance — but costly mistakes can quickly shrink the windfall, experts say.

Many investors roll pre-tax 401(k) plans into traditional IRAs, which trigger regular income taxes on future withdrawals. The tax rules are complicated for the heirs who inherit these IRAs.

The average IRA balance was $127,534 during the fourth quarter of 2024, up 38% from 2014, based on a Fidelity analysis of 16.8 million IRA accounts as of Dec. 31.

But some inherited accounts are significantly larger, and errors can be expensive, said IRA expert Denise Appleby, CEO of Appleby Retirement Consulting in Grayson, Georgia.

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Here are some big inherited IRA mistakes and how to avoid them, according to financial experts. 

What to know about the ’10-year rule’

Before the Secure Act of 2019, heirs could empty inherited IRAs over their lifetime to reduce yearly taxes, known as the “stretch IRA.”

But since 2020, certain heirs must follow the “10-year rule,” and IRAs must be depleted by the 10th year after the original account owner’s death. This applies to beneficiaries who are not a spouse, minor child, disabled, chronically ill or certain trusts.

Many heirs still don’t know how the 10-year rule works, and that can cost them, Appleby said.

If you don’t drain the balance within 10 years, there’s a 25% IRS penalty on the amount you should have withdrawn, which could be reduced or eliminated if you fix the issue within two years.

Inherited IRAs are a ‘ticking tax bomb’

For pre-tax inherited IRAs, one big mistake could be waiting until the 10th year to withdraw most of the balance, said certified financial planner Trevor Ausen, founder of Authentic Life Financial Planning in Minneapolis.

“For most, it’s a ticking tax bomb,” and the extra income in a single year could push you into a “much higher tax bracket,” he said.

Similarly, some heirs cash out an inherited IRA soon after receiving it without weighing the tax consequences, according to IRA expert and certified public accountant Ed Slott. This move could also bump you into a higher tax bracket, depending on the size of your IRA.

“It’s like a smash and grab,” he said.

Rather than depleting the IRA in one year, advisors typically run multi-year tax projections to help heirs decide when to strategically take funds from the inherited account.

Generally, it’s better to spread out withdrawals over 10 years or take funds if there’s a period when your income is lower, depending on tax brackets, experts say. 

Many heirs must take RMDs in 2025

Starting in 2025, most non-spouse heirs must take required minimum distributions, or RMDs, while emptying inherited IRAs over 10 years, if the original account owner reached RMD age before death, according to final regulations released in July.

That could surprise some beneficiaries since the IRS previously waived penalties for missed RMDs from inherited IRAs, experts say.

While your custodian calculates your RMD, there are instances where it could be inaccurate, Appleby explained.

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For example, there may be mistakes if you rolled over a balance in December or there’s a big age difference between you and your spouse.

“You need to communicate those things to your tax advisor,” she said.

Generally, you calculate RMDs for each account by dividing your prior Dec. 31 balance by a “life expectancy factor” provided by the IRS.

If you skip RMDs or don’t withdraw enough in 2025, you could see a 25% IRS penalty on the amount you should have withdrawn, or 10% if fixed within two years.

But the agency could waive the fee “if you act quickly enough” by sending Form 5329 and attaching a letter of explanation, Appleby said.

“Fix it the first year and tell the IRS you’re going to make sure it doesn’t happen again,” she said.

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U.S. shoppers ‘doom spend’ as they brace for inflation

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Consumer confidence in where the economy is headed hit a 12-year low this week, according to the Conference Board. A fresh reading out of University of Michigan today also showed a deterioration in overall sentiment with a 12% drop from February, marking the third month of decline.

Despite Americans’ concerns about the economy, they seem to be spending more. Roughly one in five Americans are shopping out of fear of future price hikes, which some experts refer to as doom spending.

Doom spending means making impulsive purchases largely driven out of fear over what the future may bring. In some cases, it’s a kind of retail therapy, but it can also be a strategy to get ahead of economic uncertainty.

“People are worried for a number of reasons,” Wendy De La Rosa, a Wharton professor who studies consumer behavior, told CNBC. “We as humans hate uncertainty and are averse to volatility. And so when there’s whiplash happening at a national level as to what tariffs are happening with which country and how it’s going to affect our domestic industries, that makes people really nervous.”

Consumer spending came in softer than expected in last month, but overall sales continued to grow steadily amid mounting fears of an economic slowdown and inflation.

It’s not just consumers who are concerned. Major companies, such as Walmart, Delta, and American Airlines, along with the Federal Reserve and Wall Street are all signaling uncertainty. The S&P 500 dropped 10% from record highs in February, suggesting investor fears over an economic slowdown.

Watch the video above to learn why Americans are spending more even in tough times and what this pattern means for the economy.

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