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How the cost of long-term care could derail your retirement dreams

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Most people envision retirement as a relaxing and enjoyable time spent pursuing long-held dreams and hobbies. In the excitement of retirement planning, it’s easy to set aside thoughts of how poor health or an unexpected medical emergency might impact your plans. Specifically, your retirement nest egg could take a huge hit if you haven’t prepared for the costs of long-term care.

Fortunately, whether you are decades away from retirement or just a few years away, there are a few key things you can do now that could make a big difference to you in the future. By preparing for the possibility of long-term care you’ll gain the added advantage of knowing you’ve done everything you could to protect your retirement nest egg even if your health isn’t what you’d hoped for during your golden years.

To get started, we first need to answer the question…

Just what is long-term care?

Long-term care refers to a whole range of personal care services you might need after a medical emergency, during rehabilitation from illness or injury, or if you have a chronic medical condition.

For example, there might come a time when you’ll need help with what are called Activities of Daily Living (ADLs). These are the basics of personal care such as bathing, toileting, dressing, and meal preparation.

Professional caregivers might come to your home to help with your personal care or you might receive care in a nursing home or assisted living facility.

The Medicare myth that could cost you a fortune

Many people who are approaching retirement age in the United States are surprised to learn that Medicare does NOT pay for the cost of long-term care. 

For example, if you have a heart attack, stroke, injury, or chronic illness, you might need long-term care. Depending on your medical situation, your care could last for many months or even years.

Medicare does not cover the cost of long-term nursing care. This includes extended stays in a nursing home or assisted living facility. Medicare will, however, pay for short-term stays in a skilled nursing facility (SNF), provided you meet certain conditions. 

Medicare outlines the share of costs for a stay in an SNF as follows:

Time Period You Pay
Days 1-20 $0 for each benefit period.
Days 21-100 $170.50 coinsurance per day of each benefit period.
Days 101 and beyond All costs.

Source (as of August 2019): Medicare.gov, Skilled nursing facility (SNF) care

Just how expensive is long-term care?

As you can see from the above chart, anything beyond a 21-day-stay means you could end up paying a significant cost for your long-term care. You could rack up a bill of $13,640 for your coinsurance costs just for days 21 through 100. Anything longer than 100 days, and your bill could be astronomical. 

That’s exactly what happened to my own father. During his 10-month stay in a nursing home, his bill came to well over $80,000. I wrote about his story in my article, “Don’t Let This Medicare Myth Wipe Out Your Retirement Nest Egg.”

If you think it’s unlikely you’ll ever need long-term care, you might want to think again. According to Genworth’s Cost of Care Survey 2018, 7 out of 10 people will need long-term care at some point in their lifetime. 

This chart from Genworth, which lists various care options in the United States and their monthly costs, illustrates just how expensive long-term care is.

Category Monthly Costs (National Median 2018)
Assisted Living Facilities $4,000
Nursing Home (semi-private room) $7,441
Nursing Home (private room) $8,365
Adult Day Care $1,560
Home Health Aide $4,195
Homemaker Services $4,004

Source: Genworth Financial, Inc.

Your options for paying for long-term care

You could choose to spend your retirement savings for any long-term care needs you might have. One problem many people encounter with this option is the fact that it’s impossible to know in advance how much (if any) long-term care you’ll need in the future. It’s impossible to know whether you’ll need months or years of care in an expensive nursing facility, or if you’ll need just a little bit of help around the house provided by a home health aide. 

In some situations, your retirement savings could run out if you decide to pay for your care out-of-pocket. This is why some people decide to purchase long-term care insurance. This insurance can pay for the cost of a skilled nursing facility, assisted living facilities, in-home care, and adult day care. Long-term care policies vary in what they cover.

While it’s beyond the scope of this article to list all the pros and cons of long-term care insurance, it’s important you understand it could be a good option for you. If you’re interested, contact an insurance broker who specializes in long-term care policies.

If you’re a homeowner, another possible option to pay for your care would be to get a reverse mortgage on your house. 

If you have very limited assets and savings, you might be able to have your long-term care paid for through Medicaid. This is the healthcare program in the United States that assists people with low income and limited resources.

Another U.S. government program that might help with your long-term care costs is called Programs of All-inclusive Care for the Elderly (PACE). PACE is paid for through Medicaid and Medicare. It offers the opportunity for some people to receive their long-term care in their own homes as long as it is safe for them to continue living at home. It’s part of an “age in place” trend that many regions are adopting to help their vulnerable seniors. Not all states and regions have PACE programs. 

The key is to start your research as early as possible and to have your plans in place before you actually need long-term care. You may limit your options for the type of care you receive and how much you pay if you wait until an emergency arises and your need for care is urgent.

The Bottom Line

For many people, the mere thought of not being able to care for one’s personal needs is such an emotional topic they’d prefer not to address it at all. But not doing anything to address this important issue could be one of the biggest health and financial mistakes you make while preparing for retirement. 

One of the easiest ways to get started is to simply have an honest conversation with your spouse, family members and/or loved ones. Review with them some of the long-term care options we’ve discussed here and ask them for their input. 

Once you’ve done your research and have decided on how you’d like your long-term care to be handled should an emergency arise, let your loved ones know what you’ve planned. They’ll appreciate knowing what your wishes are in advance should they be called upon to help out.

The truth is if you take a little bit of time now to prepare yourself for a worst-case scenario you could save your retirement nest egg from becoming depleted, and you could possibly set yourself up for a better health result as well.

Did you find this article helpful in guiding you to thinking about long-term care options for yourself or your loved ones? We’d love to hear your comments in the section below!

Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.

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About the Author

Elizabeth Blessing
Elizabeth Blessinghttp://affordablehousingtips.com/
Personal finance writer focusing on solo entrepreneurship, the gig economy, frugal living and founder of Affordable Housing Tips.

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