While it may not be pleasant to think about, the unfortunate reality is that many retirees will require long-term care at some point in their lifetime. According to the U.S. Department of Health and Human Services, the average 65-year-old has a 70 percent chance of eventually needing long-term care.1
As you might imagine, long-term care isn’t cheap. The Department of Health and Human Services reports that in 2010, an hour of in-home care cost an average of $19 to $21. A month in a private room in an assisted living facility cost an average of $3,293, while a semiprivate room in a nursing facility for one month cost an average of $6,235.2
Consider that long-term care is often needed for months or even years, and it’s easy to see how it can become a heavy financial burden. Without a long-term care plan in place, you may be forced to drain your hard-earned assets, possibly placing yourself or your spouse in a challenging financial position. Or you may have to settle for care that fits your budget but doesn’t meet your desired level of quality.
The good news is that you may still have time to develop a plan and explore funding options. Below are three common methods used to manage long-term care needs in retirement:
Pay out of pocket.
One option is simply to pay all costs out of pocket and self-fund your long-term care expenses. While this option is a possibility, it’s probably feasible only for those who have a significant amount of assets.
Self-funding presents two major challenges. One is that you simply may not have enough money to do it. You may have to move into a facility that is below your expectations. Or you may be forced to switch from high-quality care to lower-quality care later in life.
The other challenge is a common dilemma for married couples. You may have the funds available to pay for care. However, if you use those funds, your healthy spouse may be left with few assets to fund the remainder of his or her retirement. You probably don’t want to put your spouse in that situation.
Tap into government resources.
Some retirees mistakenly assume that Medicare will cover long-term care. Medicare does partially cover some long-term care needs on a very short-term basis, but that’s usually only if the care is directly related to a hospitalization. Don’t count on Medicare as a long-term funding option.
Medicaid will often provide greater funding on a more permanent basis. However, to qualify for Medicaid, you must have a very low level of personal assets. One commonly used strategy is to spend down one’s assets and then switch to Medicaid once the assets are depleted. While not ideal, this method could be used to get the care you need.
Finally, if you are a veteran, you may qualify for the Aid & Attendance (A&A) program through the U.S. Department of Veterans Affairs. The A&A program provides an additional monthly payment on top of a military pension for veterans who are homebound because of medical issues. Check with your local VA office for more information on your eligibility.
Buy long-term care insurance.
A third option is to be proactive today and buy long-term care insurance to cover future expenses. As the name implies, long-term care insurance is an insurance policy in which you pay premiums today in exchange for financial benefits in the future should you require long-term care.
You have to go through an underwriting process to qualify, so it’s important to consider these policies while you’re still healthy. Also, many policies are flexible enough to cover care provided either in or out of the home. A long-term care policy could actually help you stay in your home longer before moving to assisted living.
Long-term care policies have a number of different components and may seem complicated if you’re not familiar with them. Work with a financial professional who is knowledgeable and experienced with long-term care and various insurance options.
For more information, contact us at Baacke Insurance Services. We are happy to help you explore your needs and develop a strategy for funding the level of care you desire for yourself. Let’s connect today and start the conversation.
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