Once you turn 65, there is a 70% chance that you will need some form of long-term care. Long-term care refers to the help individuals with chronic illnesses or disabilities need to cover their daily activities over a long period. (Think nursing home or adult day care).
This type of care is extremely expensive. A quick calculation shows that it can easily cost you more than $200,000.
Many retirees wrongly believe that Medicare will provide assistance with these costs. But it only does so if you require skilled services or rehabilitation from a specific injury. Even then, Medicare rarely covers more than 22 days of nursing home care. 1
Medicaid does pay for long-term care services, but in order to qualify, your income must be below a certain level and you must meet minimum state eligibility requirements. These requirements vary from state to state. Regardless, the ugly truth is that you often must be broke before Medicaid steps in to help.
So what should you do?
Long-term care insurance is one potential solution. There are various forms of coverage that range from home services-only to full nursing home care. Policy costs differ based on age at the time of purchase, policy type and coverage. The policy will provide a daily benefit amount that covers your costs up to a specified lifetime maximum amount, unless your policy includes lifetime guaranteed coverage.
Currently, a 55-year-old male can purchase a policy that covers $200 per day for 3 years of coverage and will pay an annual premium of $2,070. The maximum benefit under this policy is $219,000.
Since females typically live longer, the equivalent policy for a woman would cost $2,536 annually.2
Regrettably, the cost and care of aging retirees often falls to a spouse, children or other relatives. Understanding potential long-term care risk is vital to creating a proper retirement plan. And by preparing today you can avoid wiping out your retirement assets and leaving a financial and emotional weight on family members.
1 U.S. Department of Health and Human Services, https://longtermcare.acl.gov/