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The Other Side of Health Care - Planning for Long Term Care Costs in Retirement

A September 2020 Retirement Confidence Index study revealed, 58% of Americans are more concerned about retirement today compared to a year ago. It also showed people worried most about their Social Security benefits drying up, outliving their retirement savings, and paying for health care. 

As far as we’re concerned, it makes sense that health care made the list, since this can be one of the biggest expenses for people in retirement. But this doesn’t have to mean stress for you if you’re soon-to-be retired. The power is yours to make sure you’re good to go for all your health care needs as you age.

Long-Term Care Should Be a Part of Your Retirement Plan

Long-term care is rarely covered by regular health insurance plans. Yet many retirees haven’t factored these costs into their retirement savings plan. That’s why planning for annual health insurance premiums and out-of-pocket expenses at retirement should be distinct from planning for long-term care expenses.

Long-term care expenses are not one size fits all - some retirees will have zero while others could have a big bill...either way, you should prepare for the eventuality.

According to Genworth’s Cost of Care survey

  • In 2019, the average annual cost of nursing home care in the United States was $102,200 for a private room
  • The average annual cost for assisted living was $48,612
  • Home health care, based on a 44-hour average week, cost $52,654 a year 
  • About half of individuals will incur long-term care costs during retirement

What is (and What Is Not) Long Term Care 

Start your planning by understanding what types of services fall under “long-term care”. 

The designation includes a variety of services intended to promote independence, maximize quality of life, and meet patients' needs over an extended period of time.

  • Most long-term care is not medical care, but rather assistance with basic day-to-day activities such as eating, bathing, dressing, grooming, using the toilet, moving about, and transferring (such as from a bed to a wheelchair). 
  • In terms of medical services, long-term care includes adult day care, homemaker services, home health aides, assisted-living facilities, and nursing home care.

Long-term care can become necessary suddenly, and without warning, such as after a heart attack or stroke. Or due to chronic illnesses like Alzheimer’s, Parkinson’s, etc. Often, it happens gradually as a health condition or disability worsens. 

How Can You Predict Whether You Will Need Long-Term Care 

The total amount you might pay for long-term care ranges from zero to more than $250,000 (for approximately 9% of retirees). The overall cost is determined by a combination of factors: 

  • Whether you will need care 
  • The type of services required
  • For how long

There is no one “best plan” when it comes to long-term care costs in retirement. It’s different for everyone. 

Obviously, it’s difficult to predict how much and what type of medical care an individual might need. But you’ll want to factor in individual personal characteristics that can significantly influence costs, such as:

  • Age - The need for long-term care generally increases as you get older
  • Gender - Women are more likely to need long-term care than men, primarily because they often live longer
  • Marital status - Single people are more likely than married people to need ongoing services from a paid care provider
  • Lifestyle - Healthy eating and good exercise habits can significantly reduce the need for health care expenses
  • Family genetics and health history - Longevity, family history of heart disease, and other factors also affect your potential need for healthcare in retirement

Calculating Long-Term Care Costs in Retirement - Other Factors to Consider 

Even if you are relatively healthy now, no one knows what the future holds. Don’t risk having to spend down your retirement portfolio for unexpected health care expenses. Evaluate your potential cost for long-term health care in retirement, taking into account:

  • Unpaid-care options - Do you have friends or family members who are willing and able to provide any part of the necessary care?
  • Acceptable types of care - Review the types of services and facilities available in your area; get clear about your standards for acceptable care (for example, do you want a private room in a nursing home, are you comfortable with a home care worker, etc.) 
  • Changes in spending habits - In the event that you need long-term care, other expenses may no longer apply (such as a travel budget or other housing costs) 
  • Medicaid - Depending on your financial need and what state you live in, you may be eligible for some assistance with long term care costs through Medicaid 

Ways to Pay for Long Term Care Costs

After evaluating your personal situation to assess potential costs, create a game plan for paying them. Potential funding sources include: 

Home equity 

If you have home equity, it can serve as a potential source to fund nursing homestays, but you may have to consider other family members living in the home.

Income annuities 

If you’re married, single-premium income annuities can serve as insurance for a surviving spouse. A guaranteed source of income to supplement Social Security for a surviving spouse lessens the financial blow of a low-probability, high-cost long-term care event. 

Long term care insurance 

The insurance market is always subject to change (especially with an election coming up) but long-term care insurance policies in the U.S. are typically pricey and insufficient. Thus, they should be used in tandem with other financial sources.

Health Savings Accounts (HSAs) 

An HSA is another way to save for unforeseen health care expenses in retirement. If you’re enrolled in a high deductible health plan (HDHP), you can contribute to an HSA, tax-free. Interestingly, you can contribute to an HSA until you enroll in Medicare. 

Financial assets 

Many retirees find themselves paying out-of-pocket for long-term care expenses. Build a contingency reserve into your retirement plan to account for large, unexpected expenses.

What About Medicare?

Some Medicare plans may cover temporary long-term care costs, but extended long-term care coverage is generally not covered. Make sure you understand how your choice of Medicare coverage will affect your health care cost.

A key piece of retirement planning is predicting these evolving and sometimes unpredictable expenses. If it seems a bit overwhelming, you’re not alone. With the help of a trusted financial planner, you can make sure you’ve covered all the bases and settle in for a fulfilling, stress-free retirement.

Are you looking for more tools to help you plan your perfect retirement? The new book from Wealth Legacy Institute founder Kim Curtis has mindset exercises, financial planning tips, and preparedness strategies to help you retire better. Sign up now to pre-order Retirement Secrets.

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