No matter how you crunch the numbers, the cost of long-term care is high. Studies have shown more than 70% of individuals over the age of 65 will need long-term care at some point. Extreme cases will need care for well over 5 years, while the average need is about 2 ½ years. At a minimum average of $75,000 per year, those numbers can really add up.
Your Personal Savings
While using your personal savings to pay for long-term care may seem like a good idea in the beginning, you’ll be startled at how quickly your funds deplete. In the beginning, many people receive free care from family members and friends – especially when their needs are as simple as rides to the grocery store or the doctor or a little bit of help around the house. As your needs become more significant, it may be more difficult for family and friends to help you, and you’ll start looking for home health aides, day care programs, and other services that make it possible for you to stay in your home. If your need progresses to the point where you need to be in a long-term care facility full-time, you’ll end up draining your savings, retirement funds, and other income sources.
Medicare and Medicaid
Medicare is the federally mandated health program available to individuals who are ages 65 and older. Unfortunately, the coverage Medicare provides for those who have long-term needs is very limited. The program will pay 100% of your needs for 20 days, only a portion for days 21 through 100, and absolutely nothing after the 100th day.
Medicaid is designed for individuals with limited incomes and, oddly enough, offers a broader level of long-term care. Medicaid extends befits to home health aides, nursing homes, and even home health aides. This program does have strict rules about your financial need and available resources.
The reverse mortgage is a relatively new concept but can be beneficial to those who are near the end of their lives and have true funding needs. If your home is your primary residence, you can take out a loan based on the value of your home. The loan doesn’t need to be repaid until you pass away or leave the home for another residence. Your estate would then pay off the loan based on the value of your house. If you’re married and your spouse is still living, this type of loan can be beneficial; but if you’re single you could only use the loan to pay for in-home care because going into a nursing home would require moving out of the house, which would automatically make the loan payments due. The pros and cons are complicated and should be discussed with a financial advisor.
Long-Term Care Insurance
When you take the cost of long-term care over 2 ½ – 5 years into consideration, long-term care insurance doesn’t seem as far-fetched. This type of policy, depending on who you buy through, will cover not only a nursing home, but may also cover assisted living or in-home care, depending on what you actually end up needing and wanting.
If, for example, you have Medicare, you may need a long-term care insurance policy to cover the time period after day 20 or day 100, where Medicare benefits are limited or cease to exist.
The trick is to decide when to buy. Premiums are locked after the time of purchase, and are lower for healthier people. If your family has a healthy history into old-age, you may be able to put off making a purchase. If your family has a history of cancer or dementia, you’ll want to buy early, while you’re still healthy and can get a lower rate
No matter what route you choose, it’s never too early to start planning. Talk to a financial advisor and to your insurance agent to make sure your overall financial portfolio is rounded out. Long-term care isn’t a pleasant topic, but focusing a little bit of your time on it now will avoid aggravation and heartache in the future.