Long-term care is unquestionably expensive; if you require it, it will likely be your largest retirement bill. The DHHS (United States Department of Health and Human Services) estimates that eldercare recipients will spend $138,000 on average this year. And the likelihood of requiring some type of long-term care is greater than many believe.
A person turning 65 today has an almost 70% likelihood of requiring some form of long-term care. In addition, according to the DHHS, one in five will require care for more than five years. Due to their longevity, women are more prone to require this kind of treatment.
Medicare, the health insurance program for those aged 65 and above, does not cover long-term care. It will cover long-term care in restricted conditions, like treatment in a rehabilitation center, if you have a disease or injury that is expected to improve. However, most of those requiring long-term care do not anticipate improvement, and they require assistance with “activities of daily life,” which are described as follows:
Eating
Dressing
Bathing
Toileting
Transferring
Continence
Long-term care insurance is one option to pay the expenses of this type of care. Such insurance will provide you with various alternatives, such as selecting a daily payout amount and the years you choose to receive this benefit. You may, for instance, get coverage that reimburses you $200 every day for up to three years.
However, long-term care insurance may be costly. The American Association of Long-Term Care Insurance provides two scenarios based on a 55-year-old single guy and a 65-year-old married couple.
Due to the wide range of rates available, an expert in long-term care should assist clients in selecting the right insurer and policy.
55-year-old single male: $164,000 benefit with no inflation adjustment
Company A: $835 annually
Company B: $2,196 annually
Combined – Both Aged 65: $164,000 benefit with a 3% inflation increase
Company C: $4,280 annually (combined)
Company D: $8,493 annually (combined)
The cost of coverage is expected to grow annually, in contrast to term life insurance rates, which remain constant for the duration of the policy. However, the cost is less expensive the younger you are when you get your first coverage. Your premiums will continue to climb year, but the base from which they increase will decrease.
Given this price, it’s hardly surprising that many individuals are seeking alternatives. Here are ten options.
Medicaid
As a federal health insurance program for low-income persons, Medicaid provides coverage for long-term care, but only under specific conditions. Medicaid will only cover the cost of nursing home care, not in-home care.
However, you cannot qualify for Medicaid until most of your assets have been depleted. You are mistaken if you believe you may circumvent Medicaid asset limitations by moving funds to a family member. A five-year look-back period is included in the program to avoid precisely this kind of scam. You may be penalized if you make any gifts or transfers within five years of applying for Medicaid.
Life coverage
Certainly, life insurance aims to safeguard your loved ones from financial trouble following your passing. Some plans offer an expedited death benefit, allowing policyholders with a terminal diagnosis or chronic disease to receive their death benefit while they are still alive.
According to the American Council on Life Insurance, insurance firms’ accelerated death benefit programs allow policyholders to access between 25 and 95 percent of their death benefits. The entire death benefit may be accessible in some cases. You must purchase a separate rider (at an extra expense) or pay a service charge to explore this option. These costs, together with the amount of money you earn from this feature, will lower the death benefit for your heirs.
Downsizing
Once your children have reached adulthood and moved out, keeping the large family estate where they grew up may no longer make sense. After selling your present house and relocating to a less costly one, place the leftover sale proceeds in a savings or investment account that will increase over time and serve as a source of cash for long-term care expenses.
A smaller room will also cut maintenance expenses and provide insurance and tax savings, allowing you to invest even more in long-term care.
Reverse mortgage
A reverse mortgage may allow you to stay in your home, often known as “aging in place,” if that is your aim. In contrast to a conventional mortgage, a reverse mortgage allows you to access a part of your home equity without having to repay it until you leave your house or violate the terms of the loan. However, you are still responsible for house maintenance, property tax payment, and homeowner’s insurance. To be eligible, you must be 62 years old, own and occupy your principal dwelling, and have adequate home equity.
One approach to consider is: Establish a reverse mortgage credit line. This payment method enables you to utilize the line just when necessary. The unused amount of your credit line continues to accrue interest, providing access to a potentially greater source of money in the future when you may require them.
Accounts for medical expenses
A health savings account or HSA allows you to make tax-deductible contributions of up to $3,500 for individuals and $7,000 for families to pay for qualified medical costs. (Those aged 55 and above can save an extra $1,000 annually.) Any monies you do not need in a given year can be invested and continue to grow tax-free, creating a fund for long-term care expenses.
Beware: Using the money for non-medical purposes will subject you to regular income tax and a 10% penalty if you are under 65. However, no tax is due if the funds are used for medical and healthcare expenses, such as long-term care. Please talk with your tax professional regarding your specific circumstances.
Relocation overseas
“Medical tourism” has long been viewed as an option for those attempting to manage their high medical expenses. Retiring overseas, where your money will go further, can also be a solution to manage long-term care expenses. You must carefully plan your relocation, evaluating areas in terms of price and access to high-quality healthcare. Initiate this method far ahead of any long-term care demands, so you won’t have any unpleasant shocks or setbacks after relocating.
Continuing-care retirement community
Consider moving into a continuing-care community, also known as a life-plan community, while you are still in excellent health. These communities provide a variety of care levels and housing alternatives. You can first live alone in an apartment or condominium, with access to various food and housekeeping options. As your health changes, you can move into a facility that provides a higher level of care, such as an assisted living facility or a nursing home.
Continuing care facilities can be expensive, demanding an upfront entry fee and a monthly charge, which may grow as your care needs increase. Entrance fees might range between $50,000 and $1,000,000. Meanwhile, monthly expenses can vary from $500 to $3,000 and, in some circumstances, much more.
Veteran’s perks
Individuals with impairments related to military service can receive long-term care from the U.S. Department of Veterans Affairs. It is not necessary for Vietnam War veterans who were exposed to Agent Orange, a toxic defoliant, and later developed a health problem to have a service-connected disability.
In addition, the VA offers a pension benefit called Aid and Attendance that gives money to pay for care if you require assistance with everyday activities. Even if your income exceeds the VA pension ceiling, you may be eligible for Aid and Attendance if you have large unreimbursed medical expenses. To qualify, you must have served in the military for a minimum of 90 days, including at least one day during wartime.
Additionally, family members who provide care for you might get compensation through the program.
Annuities
There are two fundamental types of annuities: immediate and delayed. Your funds are invested in a delayed annuity until you are prepared to commence withdrawals. If you choose an instant annuity, you will receive payments shortly after making your initial commitment.
The type of annuity you choose may ultimately depend on your age and outlook on your short- and long-term health.
A medically-underwritten annuity could offer you a larger payout if you are in poor health.
Personal savings
According to the DHHS, the typical requirement for long-term care is three years.
If you did not plan to pay for such care using an annuity, the income from a reverse mortgage, life insurance, or other financial instruments, you would be forced to use your funds to cover the costs.
In effect, you are acting as your insurer. If you never need long-term care, you will have saved a substantial amount of money by not paying insurance premiums throughout the years, which is money that you may leave to your heirs. But if you do require care, especially for an extended period (one in five individuals require care for more than five years), depending on your assets, your roll of the dice might bankrupt you.
Due to the high cost of long-term care insurance, it is vital to thoroughly explore all available choices. Start planning as soon as possible, regardless of your decision, to provide yourself and your family the greatest flexibility and, of course, the most care for as long as you require it.