You have spent years carefully working and planning so that you have enough income for a comfortable retirement. You may think your retirement savings are on track—but have you considered what might happen if you or your spouse require long-term care?
The cost of long-term care services—whether they are provided in the home, at a community facility, or in a nursing home—may not be covered under major medical plans or Medicare, and can be a threat to your retirement savings. Planning for long-term care can help you manage this risk and give you more choices and control over the care you receive.
Benefits of Talking About Long-term Care
Nobody wants to think about losing their independence and having to rely on others for their needs. But talking about—and planning for—this possibility is important because it’s more common than you might think. About 70 percent of people over age 65 will require some form of long-term care, with 24 percent requiring care for longer than two years.1 And, while long-term care is often associated with the effects of aging, it may be needed at any time because of an accident or illness, such as a stroke, cancer or dementia.
Having these conversations, especially early on, can be useful when it comes to both managing care expectations and preparing for the significant costs, particularly in retirement when there’s no longer a steady paycheck to rely on.
Another factor to consider is that your retirement years may last significantly longer than that of your parents and grandparents, due to greater life expectancies. And as you get older, your health care expenses are likely to increase—even before factoring in long-term care.
Paying for Long-term Care
A common misconception is that Medicare or Medicaid will pay for all expenses. The reality is, Medicare does not pay for assisted living facilities, continuing care retirement communities, or adult day services. Medicare does provide limited coverage for nursing home care or home health care under certain conditions, but for the most part, the costs of long-term care will be your responsibility.
One alternative to paying these expenses out of your own pocket is long-term care insurance. By paying an annual premium—perhaps from your investment earnings—you can transfer the risk to an insurance company and help protect your assets from these costs. Long-term care insurance can also help you maintain your independence and give you the freedom to choose the type of care you want.
Here are some questions to think about if you are considering long-term care insurance:
- How much protection (daily benefit) does the policy provide?
- Does the policy contain inflation protection?
- How many years of institutionalization are included?
- Is custodial care (assistance with basic daily activities either in your home or a nursing home) covered?
- Is home care covered?
- Does the policy have restrictive provisions on pre-existing conditions?
- Is the right to renew the policy guaranteed for life?
- How financially sound is the company offering the policy?
- What are the monthly/annual costs versus cash flow and investments?
If you’re not sure whether long-term care insurance is right for you, a Financial Advisor can help you understand and explore your options for offsetting the risks that long-term care might present to your retirement.
The Bottom Line
There’s a lot to think about when preparing for retirement—from the goals you want to accomplish to where you want to live. As you’re making your plan and saving up for your future, don’t forget to account for the possibility that you or your spouse may need long-term care. Talk to those around you about care expectations and costs, and figure out if long-term care insurance is right for you and your family. The earlier you can build these considerations into your roadmap, the smoother things may be on the path to retirement.
Footnotes
1 Morningstar. 100 Must-Know Statistics About Long-Term Care: 2023 Edition(opens in a new tab). March 2023.
