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As retirees live longer, many worry about surviving their savings. However, many older Americans have no impending expense planned: the cost of long-term care.
The average cost of a private room in a nursing home was $ 105,850, and the cost of home care ranged from $ 53,768 to $ 54,912 per year, according to Genworth’s 2020 Cost of Care Survey.
Of course, these costs vary depending on the location. While private room nursing homes in Massachusetts averaged $ 13,535 per month, Tennessee retirees were paying $ 7,619 per month in 2020, Genworth reported.
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“Long-term care is a huge challenge,” said certified financial planner Brett Koeppel, founder and president of Eudaimonia Wealth in Buffalo, New York.
While it is difficult to predict a retiree’s needs, the chances of needing some type of long-term care are high – nearly a 70% chance for the average 65-year-old, according to the U.S. Department of Health. Men typically take 2.2 years of care and women can take 3.7 years.
However, it can be difficult to prepare and pay for services, say financial experts.
As a rule, consultants first review the cost of long-term care in the client’s area. While some retirees can pay out of pocket, others prefer to share the risk by purchasing an insurance policy.
care insurance
Long-term care insurance can cover all or part of the benefits, and the premiums depend on age, gender, health, place of residence and more.
According to the American Association of Long-Term Care Insurance, the average initial benefit premium of $ 165,000 (up 1% to 5% per year) for a healthy 55-year-old male can range from $ 1,375 to $ 3,685 per year .
A healthy 55-year-old woman can spend $ 2,150 to $ 6,400 a year on the same coverage.
However, according to estimates by the American Association for Long-Term Care Insurance, there is a 50 percent chance someone will not need their policy, and premium increases can be costly.
“Typically, the premiums increase by 5% and they require an increase every five years,” said Brian Schmehil, CFP and director of wealth management at The Mather Group in Chicago.
Hybrid long-term care insurance
Hybrid long-term care insurance is another option. Some of these policies are life or pension insurance and some are long-term care insurance.
Retirees can get a prepaid policy, which eliminates the risk of future premium increases, and their heirs can receive a death benefit if they do not need long-term care.
“I’ve heard people describe it as just another way of taking part of their savings and managing risk that way,” Koeppel said. “It gives people peace of mind that they are covered.”
It can be more difficult to compare the prices of a hybrid long-term insurance than a stand-alone long-term care insurance.
However, a retiree can save money by trading in an existing life insurance policy or annuity through what is known as a 1035 exchange, which allows them to avoid taxes on the profits embedded in their legacy products.
Other options
Retirees with a sizeable health savings account can use their pre-tax funds to cover care premiums or costs.
In addition, individuals who break down deductions can deduct care costs over 7.5% of their adjusted gross income.
Low-income retirees whose wealth is below certain thresholds may be eligible for long-term care benefits from Medicaid. However, there is a five year “look back” for those trying to give away or spend assets to qualify.
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