The cost of long-term care could easily decimate anyone’s retirement accounts. If you don’t plan properly for long-term care, your options will be limited.
Half of people who are age 65 and over will incur the long-term cost of nursing home or skilled facility care. The problem is, according to this article from MarketWatch, “This is how much long-term care could cost you, and don’t expect Medicare to help,” that Medicare doesn’t cover the custodial care necessary for the tasks of daily living.
The length of care needed differs by gender. The U.S. Department of Health and Human Services’ Administration on Aging says that men can expect to need help for an average of 2.2 years, and women will need help for about 3.7 years.
Many will rely on unpaid care from spouses or children, but over a third will spend time in a nursing home, where the median annual cost of a private room is now more than $100,000, according to insurer Genworth’s 2018 Cost of Care Survey. Four out of ten will choose paid care at home; the median annual cost of a home health aide is more than $50,000. Finally, more than 50% of people over 65 will incur long-term care costs, and 15% will incur more than $250,000 in costs, according to a study by Vanguard Research and Mercer Health and Benefits.
Note that Medicare and private health insurance typically don’t cover these “custodial” expenses. This means that such costs can quickly deplete the $126,000 median retirement savings for people age 65 to 74. People who exhaust their savings could wind up on Medicaid, the government health program for the indigent that pays for about half of all nursing home and custodial care.
People who live alone, are in poor health, or who have a family history of chronic conditions are more likely to require long-term care. Women face special risks, since they typically outlive their husbands and, as a result, may not have anyone to provide them with unpaid care. If husbands require paid care that erases all of the couple’s savings, women could have years or even decades of living on nothing but Social Security.
The earlier you start planning, the more choice and control you’ll have. Let’s look at some of the options:
Long-term care insurance. The average annual premium for a 55-year-old couple was $3,050 in 2019, according to the American Association for Long-Term Care Insurance. Premiums are higher for older people, and those with chronic conditions might not be eligible. Policies typically cover part of long-term care costs for a defined period, like three years.
Hybrid long-term care insurance. With life insurance or annuities with long-term care benefits, money that isn’t used for long-term care can be left to your heirs. These products typically require you to commit large sums or are paid in installments over 5 to 10 years, although some now have “lifetime pay” options.
Home equity. People who move permanently into a nursing home may be able to sell their houses to help fund the care. Reverse mortgages may be an option, if one member of a couple remains in the home. This type of loan lets them use their home equity. However, it must be repaid if the owners die, sold, or they must move out.
Contingency reserve. People with a great deal of investments could plan on using some of those assets for long-term care. Their investments can produce income, until there’s a need for long-term care, and then can be sold to pay for a nursing home or home health aide.
Spending down for Medicaid eligibility. If the worst case scenario hits and long-term care wipes out all retirement assets, then the only recourse is to apply for Medicaid. It would be better to do some advance planning with an elder law attorney, to see if there is any way to protect some assets for a surviving spouse, if there is one.
In all cases, advance planning in mid-life to purchase a long-term insurance plan is optimal.
Reference: MarketWatch (July 19, 2019) “This is how much long-term care could cost you, and don’t expect Medicare to help”