What you need to know to help you understand and plan for long-term care.
We are living longer than ever before, and that means that long-term care is in the cards for most of us. That's a problem, because long-term care is costly. Planning ahead for long-term care expenses is critical to retirement planning, so here's what you need to know about long-term care, including some tips that can help you prepare for it.
The most common reasons for requiring long-term care are stroke, Alzheimer's disease, and cancer and those are most often diagnosed later in life. For example, more than a third of all cancer cases are diagnosed in patients older than 75 and 95% of all Alzheimer's disease cases are diagnosed in people older than 65.
Since Americans are living longer, the likelihood of requiring long-term care because of one of these conditions -- or another illness or injury -- is high. According to the Department of Health and Human Services, more than two out of every three Americans turning age 65 this year will require long-term care at some point in their lifetime.
Long-term care is expensive and its cost is increasing every year. Sometimes, long-term care can be provided in home, which is cheaper, but assisted living or nursing home care is often required, and that care is no bargain.
The annual cost of an assisted living facility and a semi-private room in a nursing home is $43,539 per year and $82,125 per year, respectively.
About half of long-term care patients require help for more than one year, so plan on coin-flip odds of needing long-term care for more than 12 months.
Among people who receive long-term care for more than one year, the average period of time that care is needed lasts 3.9 years.
Since a lot of that care is likely to be provided in pricey nursing homes, the lifetime cost of long-term care can be sky-high.
Picking up the tab
Many people believe that the costs associated with long-term care will be picked up by private insurance or Medicare. But that's not the case.
Private insurance and Medicare will pay for some healthcare services, but only if certain requirements are met and just for a short period of time. Importantly, private insurance and Medicare won't pay for costs that are associated with custodial care or personal care services. Those costs can be significant.
Medicaid will pay for long-term care, however qualifying for Medicaid isn't easy. Most states will only consider someone eligible for Medicaid if they have limited assets and income.
Therefore, it may make sense to plan ahead and buy a long-term care insurance policy. The annual premiums associated with long-term care insurance will vary depending on age, health, and coverage, but they can be bought for a few thousand dollars per year. That may sound like a lot of money, but it's not, especially when you consider how quickly retirement savings could disappear if you're forced to pay for long-term care out of pocket.
It can be incredibly difficult navigating all the decisions that have to be made when its determined that a loved one requires long-term care. However, it may help to keep a few things in mind when selecting an appropriate facility for care.
First, consider if there are any facilities that specialize in the kind of care that your loved one requires. For example, some specialize in dealing with dementia patients.
Second, keep in mind that costs associated with specialized care may be higher. For instance, memory care centers can cost 30% more than regular facilities.
Third, visit multiple facilities in person so that you can see first-hand what kind of care your loved one will receive. Sources for possible facilities include family, friends, and online services, such as the Department of Health and Human Services Eldercare locator. When you go, don't be shy of asking residents and their families how they like it there. You might be surprised by the responses.
Reduce the mistakes associated with making long-term care decisions by putting a plan in place ahead of time. Unfortunately, too few people appear to be doing that.
Although more than 40 million people receive Social Security, only about 8 million Americans have purchased long-term care insurance. Since most Americans will require some long-term care at some point, and 20% of Americans will require long-term care for longer than five years, putting off long-term care insurance may be foolish.
Visiting with an elder law attorney in your area may make a lot of sense as well. They focus on retirement and long-term care planning strategies that may help protect assets and that insight can be critical if Medicaid gets involved in your loved one's long-term care. Medicaid eligibility requirements include a five-year look-back period that can result in penalties if individuals attempt to qualify by gifting money or assets. Medicaid can also place a lien on your home to recoup expenses paid for long-term care after you die. Medicaid won't force a spouse to sell a home once you pass away, but it may place a lien on your home once they pass away too. A skilled elder law attorney may be able to help you avoid that risk.
Overall, the odds are that long-term care costs will quickly deplete all but the biggest retirement nest eggs. Discussing long-term care needs ahead of time may be difficult, but failing to prepare can have a long-lasting impact on your family years after you're gone. Therefore, if you're in or approaching retirement, make sure you consider the possibility of needing long-term care and take steps to protect the assets you've spent a lifetime accumulating.
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