We spend a good portion of our working years thinking about and planning for retirement. The days when we’ll be able to relax and enjoy life, travel and play with our grandchildren. We saved money in our 401(k) plans, IRAs, savings accounts and other vehicles to have the assets to do the things we plan for in our retirement and to live comfortably.
Many of us however have overlooked one of the most important steps in retirement planning and that is protecting those assets and retirement income against the need for long-term care. Estimates show that approximately 70% of Americans who live to the age of 65, will need some form of long-term care during the remainder of their life and this care is expensive. The Genworth 2012 Cost of Care Study shows the following national median costs of care:
|Type of Care||Cost||Projected Increase|
|Nursing Home (Private Room)
||4.23% increase over 2011 costs
|Nursing Home (Semi-Private Room)
||3.63% increase over 2011 costs
|Assisted Living Facility
||1.19% increase over 2011 costs
Costs in certain areas are much more expensive and growing at faster rates. The median national cost of a private room in a nursing home in 2007 was $65,700 and in 2012 is $81,030, so someone who entered a nursing home in 2007 is paying $15,330 more per year today. With the average stay in a nursing home for men being around 2.3 years and for women being as much as a year longer this could mean a total cost of $186,369 for men and $267,399 for women, in today’s dollars. If the inflationary rate of care remains fairly stable at around 4%, those costs could be over $392,000 and $560,000 twenty years from now! The average cost of care in a nursing home can easily deplete a significant amount of our savings pretty quickly.
Another risk we all face in retirement planning is the cost of our medical bills during our retirement years. As we age and our health begins to decline, we start to utilize medical services more frequently. A study conducted by the Center for Retirement Research at Boston College found that the expected present value of lifetime uninsured health care costs for a typical married couple age 65 is $197,000 with a risk for this to be much higher. These costs include premiums for Medicare Part B and Part D, Medigap and retiree health insurance and other services such as dental care, hearing aids, etc. This cost does not include the costs of a nursing home.
So on average, we’re already looking at the potential of $197,000 or more in out-of-pocket costs for health care after we hit age 65 plus the risk of requiring long-term care in a facility costing additional hundreds of thousands of dollars. Are we prepared for that kind of outlay of money from our retirement savings and income? How will that impact our spouse’s retirement? What kind of impact will that have on any inheritance for family or charitable organizations we had planned for?
Preparing for the Retirement Risks
We can mitigate some of the risks of the costs of health care by exploring plans like Medigap policies that help to pay for uninsured medical expenses under Medicare but we’re still likely to experience significant costs for health care during our retirement years.
We can significantly mitigate the risk of using our assets to pay for the need for long-term care by transferring that risk to an insurance company by purchasing a long-term care insurance policy.
Long-Term Care Insurance
Long-term care insurance is the type of insurance that helps to pay for the costs of care in your home, a community setting or in a facility (like an assisted living facility or a nursing home). Long-term care encompasses a range of services you may need over a long period of time and is generally not medical care. A good long-term care insurance policy can cover a substantial amount of the expenses you may incur should you need long-term care. These policies have a great deal of flexibility in design to meet your needs and also offer discounts for excellent health, if you are married or have a partner and if you are a member of a particular group.
Generally, the younger you are the lower the premium and more likely that you will qualify for coverage due to health risks.
Sound financial planning for retirement necessarily includes the consideration of how you will pay for long-term care services should you need them. Questions you need to ask yourself are: Will you pay for long-term care out of your savings and ongoing retirement income? Will this deplete your assets? How will it impact my spouse/partner? Do I want to impoverish myself by paying for my own long-term care so that Medicaid will begin paying?
Can I protect myself, my family and the assets I have built over a lifetime from the catastrophic costs of a long-term care event?
You do have choices and opportunities to protect your nest-egg. Educate yourself on long-term care insurance and whether it is right for you and your family.
Receive your free electronic Long Term Care Planning Kit.
Click on the link below to download your free LTC Planning Kit to help determine what options you have to protect yourself against a need for long-term care. Contact us to determine if you are eligible for discounts through our over 550 association discount program.