Long-term care funding options to protect your retirement nest egg

Submitted by ChloeS on Tue, 01/10/2017 - 19:51
LTC nest egg

One day it happens. After you and your spouse have enjoyed successful careers, and saved diligently so you could be financially secure and able to fully enjoy retirement, the unexpected hits: Your mom suffers a stroke, and your family is faced with the sobering fact that her compromised health condition now requires a level of long-term care none of you had ever anticipated.

As you realize that she has no financial resources to cover this massive new expense, and you learn that it will not be covered by Medicare or Medicaid, you face two impossible choices: You can move your mom into your home and become her full-time caregiver OR you can use your own nest egg to pay for her care. Either way, your dreams of travelling the world are fading fast.

It’s a heartbreaking scenario that plays out all too often. Many people simply can’t imagine a time when they’ll need help with their basic daily activities such as bathing and dressing. But according to LongTermCare.gov, 70 percent of us will need some form of long term care (LTC) after age 65.

Most people are also completely unprepared for the sticker shock of LTC. The cost of care varies according to where you live, but according to LongTermCare.gov, the cost can be almost $6,000 a month for a nursing home, over $3,000 a month for an assisted living facility, and around $21 per hour for a home health aide.

That adds up fast, and costs are only going up. According to The Chicago Financial Planner, private room nursing home rates jumped 3.8 percent last year to a nationwide average of $90,520 annually. In places like Massachusetts and New York, the average cost is $120,000.00 to $150,000.00 a year.

Advance care planning is essential.

So what will you do if you or someone in your family needs LTC? How will you pay for it? Many people assume Medicare or Medicaid will cover them. But Medicare only pays for skilled services or rehabilitative care, not for assistance with activities of daily living (ADL), which represents the majority of LTC services, and Medicaid imposes strict income and state eligibility requirements to qualify. But that doesn’t mean you’re out of luck. There are several options for funding long-term care expenses:

  • Long-term care insurance. After a rocky road, the long-term care insurance market has now stabilized, creating many affordable options. Don’t wait until you’re old and sick to buy coverage though.
  • Short-term care insurance. Similar to LTC insurance, but benefits are usually capped at one year. It’s less expensive, and may also be available to older seniors or those who aren't otherwise eligible for LTC coverage.
  • Life insurance with an LTC rider. A specialty hybrid policy that features living benefits you can use to pay for long-term care expenses.
  • LTC annuities. Requires a substantial payment up front, but if you need LTC, the overall cost may be lower than what you'd spend on insurance premiums.
  • Health Savings Account (HSA). If you have an eligible high-deductible health insurance plan, you can pay LTC insurance premiums with money from your HSA.

Don’t let LTC expenses wipe out your nest egg.

Have the conversation, consider all of the options, and work with a financial expert to come up with a plan that makes sense for your financial needs. Contact Heffernan Insurance Brokers and we’ll help you sort it out.