Imagine you’ve done everything right to prepare for retirement. You’ve maxed out your 401(k) and Roth IRA for years, slowly paid off your primary residence, and reduced your living expenses. You’ve bought plenty of life insurance and secured health insurance that will last until you reach Medicare. Not only that, but you’ve avoided many of the common trappings of future retirees – things like getting into debt to pay for your kid’s college or running into big medical bills.
You might think your retirement will be smooth sailing, but there’s still one major factor to consider – paying for long-term care. Far too many future retirees glaze over this important component of retirement, mostly because the idea of “long-term care” is depressing – and long-term care insurance is so expensive.
Unfortunately, failing to plan for long-term care can be a costly mistake. According to recent statistics from U.S. government, the average cost for a semi-private room in a nursing home is around $6,235 per month. An assisted living facility, on the other hand, costs an average of $3,293 per month. Heck, even having a home health aide visit your home costs $21 an hour, on average.
If you don’t plan for these huge costs, it’s pretty safe to say you’ll be in for a rude awakening if the worst happens and you or your spouse actually need long-term care. What then?
Will You Need Long-Term Care Insurance?
Unfortunately, this is one issue that hardly anyone talks about. Then again, far too many of us think we're invincible. We like to think we’ll live full and exciting lives until our 90’s, then die in our sleep. Nobody wants to picture themselves lying in a nursing home having their diaper changed every few hours, or getting so sick we need professional help to remain at home.
Unfortunately, the latter scenario is not only possible, but likely. As the U.S. Department of Health and Human Services notes, someone turning 65 today has an almost 70 percent chance of needing long-term care during their lifetime. Further, the average long-term care stay for men sits at 2.2 years, while women need an average of 3.7 years of long-term care.
Still, many people don’t bother buying long-term care insurance, mostly due to the expense. According to the American Association for Long-Term Care Insurance (AALTCI), the average long-term care insurance premiums for a 55-year-old are around $2,007 per year. For a couple the same age, the average premiums are around $2,466 per year combined. For the average 60-year-old couple, the average long-term care insurance premium runs around $3,381, but can be as high as $5,637.
4 Factors to Consider Regarding Long-Term Care
As you navigate the world of long-term care insurance, it’s important to know the various option you have. Here are a few important factors to consider:
Medicare is your first line of defense.
One of the biggest misconceptions people have about long-term care is that the “state” is going to take care of it. While there’s some truth to this idea, it’s not as easy as it seems.
If you’re old enough to qualify for Medicare, you can think of Medicare as your first line of defense when it comes to long-term care. Generally speaking, Medicare will cover the first 100 days of long-term care in certain situations. Here’s what Medicare.gov has to say about long-term care:
“Long-term care is a range of services and support for your personal care needs. Most long-term care isn't medical care, but rather help with basic personal tasks of everyday life, sometimes called activities of daily living. Medicare doesn’t cover long-term care (also called custodial care), if that's the only care you need. Most nursing home care is custodial care.”
According to Medicare.gov, Medicare does cover:
- Care in a long-term care hospital
- Skilled nursing care in a skilled nursing facility
- Eligible home health services
- Hospice & respite care
The Department of Veterans Affairs might help.
If you’re a veteran, you may qualify for assistance with long-term care depending on your situation. According to VA.gov, home and community-based services are part of the VA Medical Benefits package. To qualify, you must have a clinical need and the services must be available in your geographic area. These services can include:
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- Geriatric Evaluation to assess your care needs and to create a care plan
- Adult Day Health Care
- Respite Care
- Skilled Home Health Care
Nursing home care has different eligibility requirements, but it’s clear that the VA does not pay for room and board in residential settings such as assisted living or adult family homes.
“However, you may receive some Home and Community Based Services while you are living in a residential setting,” writes VA.gov on their website. “The VA will provide Community Living Center (VA Nursing Home) or community nursing home care IF you meet certain eligibility criteria involving your service connected status, level of disability, and income.”
To summarize, long-term care benefits from the VA depend on your health, your level of need, and availability in your area. Make sure to check with your local VA for more information before you count on help with long-term care from the Office of Veterans Affairs.
Medicaid is your last option, but only when your assets have been depleted.
If you’re not a veteran or need more long-term care than Medicare will cover, you might assume that “the state” will step in to pay. This is another big misconception that is partly true: Yes, Medicaid will chip in to pay for long-term care, but only after you jump through a bunch of hoops and spend down all your assets.
While the rules are somewhat jumbled, you really need to have less than $2,000 in liquid assets to have any hope of Medicaid covering your long-term care expenses. Yes, you read that right – $2,000 in cash and investments that are liquid. This includes your checking and savings account, CDs at the bank, IRAs, and even cash value life insurance policies.
In other words, you basically need to go broke before you can expect help from Medicaid. There are a few exceptions, of course. For example, Medicaid offers exemptions for your primary residence (with limits defined by your state). You can have equity in your home, and still qualify for help from Medicaid.
In addition to that, you’re allowed to have a car worth its market value. You can also have a prepaid funeral without having to worry about Medicaid going after it.
Long-term care insurance is a smart option, but it helps to buy when you’re young.
The obvious way to prepare for the inevitability of needing long-term care is buying long-term care insurance. But, at what cost? And, when do you buy it? Here’s where things get tricky.
First off, nobody wants to think of long-term care insurance. People are much more comfortable with the idea of death versus slowly decaying in a nursing home over several years. Because of this, many people never look into long-term care insurance until they get sick and actually need it. And by then, it's far too late.
The key to buying long-term care insurance is the same as life insurance – buying early. As with any type of insurance, you have to buy it before you need it. Since long-term care insurance is expensive, this is a tough pill for many people to swallow. Worse, the way long-term care insurance isn’t all that appealing to consumers, either.
First, long-term care insurance is mostly a “use it or lose it” game. You can pay into a policy for decades or more, but the policy dies and you get zero if you pass away without using it. Another undesirable aspect of long-term care insurance is that your premiums aren’t usually fixed. Where you may pay the same life insurance premiums for thirty years, your long-term care insurance premiums will likely grow as you age.
Regardless, long-term care insurance can easily become a bargain if you need it – and especially over the long-term. Imagine your spouse needs to live in a nursing home for five years to the tune of $6,235 per month. Over 60 months, you would pay $374,100!
This is why you should look into long-term care insurance if you can afford it. Without a policy, you could easily spend your entire life savings paying for nursing home care.
The Bottom Line
Getting old is inevitable, but none of us know what our final years will look like. Some of us will live in our own homes with full health until the very end, while others will need long-term care for years.
Just like anything else in life, long-term care is less stressful when you start looking ahead early. With some planning, you can shelter your nest egg from the increasing costs of long-term care, pass on your wealth to your children, and avoid the stress that comes with dealing with this issue in old age.
If you’re curious how to start planning or want to know how to protect your assets, your financial advisor is a good place to start. Most importantly, you need to start asking questions and looking ahead to the future before it’s too late.
Do you have long-term care insurance? Why or why not? How do you plan to pay for long-term care?