Seventy percent of Americans who reach age 65 will at some point need long-term care, whether at home or in an assisted care or nursing home facility, according to the U.S. Department of Health and Human Services.
The big problem is how to pay for that care. Most people believe, incorrectly, that Medicare will pay for their long-term care expenses. Medicare will only pay for the first 20 days. The next 80 days you will have to pay $164.50 per day before any help from Medicare kicks in. After day 100, you are on your own as far as paying for long-term care.
Medicaid, which is a totally separate program from Medicare, will pay for your long-term care but only after you spend down almost of of your assets, depending on the state that you live in. You definitely want to avoid this situation if you can because it is financially and emotionally terrifying for your entire family. Unfortunately, this option is the only option for the majority of Americans. Solving this dilemma is a whole other topic.
You can self fund your LTC expenses but you’ll have to plan accordingly. LTC can cost anywhere from $50,000 to $120,000 per year, depending on your location and the level of care that you’ll need. As you can see, if you will need LTC for more than a few years, it can be financially devastating if not adequately planned for in advance.
Another way to plan for the eventuality of long-term care is to purchase long-term care insurance. It is actually much more affordable than you might think. Plus, once you realize you can easily spend your entire retirement nest egg on long-term care, it makes even more sense.
For example, a couple in their mid-50’s can get a long-term care insurance policy on each of them for about $3,000 total annual premium. Keep in mind that there are many options to choose from when buying LTC insurance so you definitely want to do your homework. The biggest factors in determining your premium amount are your health, current age, and the length of the benefit period.
LTC insurance is very complex so make sure that you talk to a licensed adviser so you fully understand all of the ins and outs.
The biggest problem with LTC insurance, or any insurance for that matter, is writing that premium check every month to pay for something that you hope you will never use. But, when you consider that the average cost of a year’s stay in a LTC facility is about $100,000, cutting that premium check is a little less painful.
Planning for long-term care is probably the most avoided part of retirement planning but it could become the biggest obstacle in realizing your retirement dreams. Please let me know if you have any questions.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
