Understandably, most of us don’t want to think about being unable to care for ourselves at some point. The idea of burdening our children or other loved ones with our future care is not appealing. However, sticking our heads in the sand isn’t a viable strategy.
- Roughly 70 percent of people over 65 today will need long-term care.
- Long-term care costs can top six figures a year.
- Women are more likely to need long-term care, and to need it for a longer period than men are.
- Women may be dealing with fewer financial resources just as they reach the stage when they need care thanks to having taken time out of the workforce for caregiving.
With that in mind, here are some steps to take to make sure you can fund your long-term care needs down the road.
1. Understand Your Current And Expected Future Financial Situation
In some ways, planning for long-term care is similar to planning for other big-ticket expenses — such as college costs. You start by estimating how much you might need and how soon you’ll need it.
There are calculators like this one from insurer Genworth you can use to estimate your care costs under different scenarios. However, your family medical history, career, and lifestyle also influence whether, when, and how much care you’ll need. There’s also the luck of the draw. Any one of us could have a devastating injury or develop a debilitating illness at any time.
Once you have a ballpark idea of what your future costs could be, you can start planning how you’ll fund them. One thing to factor into your scenarios and — critically — to communicate to your loved ones, is how you want to be cared for. If you want to age in place no matter what, be clear about your intentions. If you envision transitioning to assisted living, it’s a good idea to start researching communities in the location(s) you’re considering retiring to, so you have a realistic idea of what you can afford, and what you would get for your money.
2. Learn About Your Options
One misconception I often hear from clients and others is that Medicare will cover their long-term care costs if they ever need it. Unfortunately, that’s not true. Medicare does cover seniors’ health care insurance needs including primary and hospital care, surgery, and temporary rehabilitation, among other services. However, it doesn’t cover home health aides, memory care, or traditional nursing home costs. The good news is that even though long-term care (whether at home or in a residential facility) is pricey, you do have options to finance it. Here are some ways to do that.
This works if you’ve amassed enough savings over and above what you need for your day-to-day spending and desired lifestyle in retirement. But, since long-term care costs can range up to several hundred thousand dollars, this isn’t an option for most people. The range is wide because long-term care can encompass everything from help with activities of daily living (commonly understood as walking/transferring, bathing, dressing, toileting, eating, and continence), so you can continue living at home to adult daycare to full memory care in a residential facility.
Life insurance policies that are considered “permanent,” meaning they include a death benefit and a cash value component, include an option to add a rider for long-term care coverage. These policies typically provide a lump-sum coverage amount or a monthly benefit amount.
Long-Term Care (LTC) Insurance
These policies are similar to health insurance in that in exchange for paying monthly premiums, you’ll have coverage when you need it. Coverage typically includes in-home aides and/or facility-based care (assisted living, nursing home, and memory care). You have to meet certain requirements for coverage to kick in.
Medicaid is the main payer for people in residential facilities (assisted living, nursing homes, and memory-care units). While Medicaid is a federal program, it is administered by the states. People seeking coverage must apply for and meet their individual state’s eligibility requirements. Medicaid can cover in-home, community, and facility-based care for those who qualify.
Pro Tip: While Medicaid is in theory limited to those with high financial need and limited assets, the value of your home isn’t included for purposes of determining your assets. It’s worth speaking with an elder law attorney experienced with successfully navigating the Medicaid application process to determine how you might qualify.
The National Elder Law Foundation maintains a listing of Certified Elder Law Attorneys (CELA) — those who have met its educational, practical, and exam requirements for proficiency in this field.
3. Time Your Purchase
Timing is everything, right? When it comes to long-term care coverage, age matters. Apply too early, before age 50, and you could be paying monthly premiums years before you ever need coverage. That said, waiting too late, beyond the age of 60 or so, can leave you with reduced options.
The older you are, the more likely you are to have developed pre-existing health conditions that disqualify you from coverage, raise the cost, or mean you’ll need care sooner. Remember that insurers are looking to minimize the chance they’ll have to pay out more in benefits than they’ve collected from you in premiums!
You’ll want to run the numbers yourself or enlist a financial advisor with experience evaluating insurance and funding scenarios to see what makes the most financial sense and aligns with your risk tolerance. For some, paying more to lock in a policy years before they’ll need it will give them valuable peace of mind.
4. Weigh Your Options
Long-term care coverage through a life insurance rider can avoid this timing decision, but there are tradeoffs. Only certain types of life insurance policies offer this benefit. Cheaper term life policies typically don’t. You also have to opt for coverage and meet certain conditions when you buy the policy. Lastly, using part of your life insurance benefits to fund your LTC costs will reduce the death benefit available to your loved ones.
Coverage is cheaper than it is for standalone LTC policies, but there’s a cost to that. The benefits offered with this type of coverage are also leaner. If you’re healthy with no family history of debilitating illness and/or degenerative conditions, this may be all you need. Remember, the future is unknowable, and things can change.
Pro Tip: If you itemize, you may be able to deduct some of your long-term care premium costs on your tax returns. Speak with your tax preparer to make sure you’re taking advantage of any deductions you’re eligible for.
5. Know What To Look For In A Long-Term Care Policy
Insurers may restrict coverage based on location (watch out for this if you plan on retiring overseas); impose waiting periods for coverage of pre-existing conditions; or exclude certain health conditions altogether. Before you purchase a policy, make sure you understand what conditions are excluded.
Insurers can also impose waiting periods, typically called elimination periods (90 days is common, but not universal) before coverage kicks in. You also want to take note of daily benefit amounts and your maximum policy benefit (the maximum cumulative dollar amount your coverage will pay).
Pro Tip: As with so much else in life, it pays to shop around. Compare rates, terms (elimination periods and maximum benefit amounts), and financial strength ratings from different insurers before you choose a policy.
6. Don’t Put It Off
You deserve to enjoy retirement. To help make sure you can do that, you need to plan. That includes facing your fears and taking an in-depth look at your current and expected future financial situation, understanding potential funding options, and taking the steps now — whether that’s increasing your nest egg or applying for coverage — to make sure you’re set up for the future.
Ideally, you’ll beat the statistics and enjoy good health throughout your retirement years. However, planning for a successful retirement means running through different scenarios. You’ll most likely need a combination of the above resources to fund your care. Continuing to save, whether or not you have or plan to buy coverage, will give you a buffer to supplement coverage gaps.
For more helpful insight on planning your post-working life, take a look at these other articles on retirement: