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How Much Money Is Needed for Long-Term Care?

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Planning for long-term care expenses now can save you and your loved ones a lot of stress later on.

You probably know that health care is a big expense for retirees. Research shows that 70% of seniors aged 65+ will require some type of long-term care in their lifetime. This could be as little as a couple of visits a week from a home health aide to years in a nursing home. If you don’t plan ahead, these expenses could easily  bankrupt you.

Motley Fool’s January 2020 article (which is still relevant a year later!) entitled “The Shocking Cost of Long-Term Care — and How to Tackle It” says that another thing you probably know — or should know —is that YOU’RE footing the bill for long-term care. It’s not covered by Medicare. Medicare will only pay for medical-related services, like those needed to help you recover from an injury, illness, or procedure. Therefore, if you’re admitted to the hospital and then need a few weeks at a skilled nursing facility to finish your recuperation, Medicare will usually pay for that short stay. However, if you need help getting dressed in the morning due to chronic conditions or merely your advancing years, are bedridden, or will need to move permanently into a nursing home, it’s not covered. You’ll have to pay for that care yourself.

Let’s look at the average annual cost nationwide of what some common services will cost you, based on 2019 data from Genworth:

  • Assisted living facility: $48,612
  • Home health aide: $52,624
  • Shared nursing home room: $90,155
  • Private nursing home room: $102,200

Remember that these are just averages, and in some parts of the country, you’ll pay much more. You can, therefore, see why it’s critical to have a plan in place for covering long-term care costs in your senior years, before that expense hits you.

You have a few choices for addressing the major expense of long-term care. One is that you can add to your retirement savings as much as possible. IRA contribution limits for 2021 max out at $6,000 a year for workers under 50, and $7,000 a year for those 50 and over. With a 401(k), you get even more flexibility to fund your savings. Workers under 50 can deposit up to $19,500 annually, and if you’re 50 and over, you can go up to $26,000. The more money you add to your savings while you’re working, the more funds you’ll have available in case you need to pay for long-term care when you retire.

Another option is to contribute to a health savings account, or HSA, and carry unused funds into retirement. You can then take withdrawals to pay for long-term care. Annual HSA contributions for 2021 max out at $3,600 a year for those who save on their own behalf, or $7,200 for those saving on behalf of a family. Workers 55 and older get an additional $1,000 per year to contribute. HSA funds never expire, so these accounts are a very effective way to save for future healthcare costs, like long-term care, in a tax-efficient manner.

Finally, you can buy a long-term care insurance policy which will pay for a big part of your costs when you have large bills. Very few insurance companies offer pure long-term care insurance any more – and even fewer people want to pay those premiums. Most people today are opting for life insurance or annuities with long-term care riders. Optimally, you should apply for long-term care insurance in your 50s, but many seniors get approved in their 60s. You can use funds from your HSA to pay for them.

Long-term care is an expense many seniors will have to address. If you want to avoid a situation where you’re forced into severe financial times, talk with your financial advisor today. Plan now to give you, and the people who care about you the most, less to worry about in the future.