1. Long-Term Care Costs
Because Americans are living longer than they ever have before, the chances of needing long-term care are much higher, and this is an expense that could be far greater than your Social Security benefits will cover. In fact, the median annual cost for care in an assisted living facility is $43,539. 25
There are a number of options for covering long-term care expenses, each with its own advantages and disadvantages. It makes sense to discuss your options with a licensed insurance agent or other qualified individual, such as a tax advisor or attorney.
Medicare may pay for up to 100 days of care in a skilled nursing facility for each benefit period, but it only pays 100 percent for the first 20 days in each period, the remaining days require a copayment. Those benefits may not be available for home care, and once Medicare stops paying, any Medicare supplement insurance policy will also stop paying. It’s also important to remember that Medicare pays for acute care, but not for long-term residency.
Medicaid may be available to pay for some long-term care services both at home and in the community, but it does set limits on the amount of assets you may own and the amount of income you may receive each month in order to be eligible for benefits. Coverage eligibility varies from state to state.
4. Personal Savings
You could plan to use your personal savings to cover any long-term care costs you may encounter, allowing you to maintain control over your assets and ensure there are no restrictions on the type of care you choose to receive. However, as stated earlier, these costs can be considerable. If long-term care costs increase, and your retirement assets shrink, you may run the risk of depleting your retirement savings and your freedom to choose the care you need may become limited as your retirement savings are reduced.
5. Long-Term Care Insurance
Long-term care insurance may be a more sensible option, increasing the funds you have available to pay long-term care expenses and allowing you to transfer the risk of long-term care expenses away from your current retirement assets to an insurance company. However, the insurance will come at a cost, and generally speaking, the longer you wait to purchase long-term care insurance the higher the premiums are likely to be. In addition, the premiums may not be guaranteed and could increase in later years, and if you never need long-term care, the money you spend in premiums may be lost.
6. Life Insurance With Accelerated Benefits
Another option for helping to pay long-term care expenses is a life insurance policy with accelerated benefits. A life insurance policy with an optional accelerated benefits rider offers an income tax-free death benefit as well as limited access to the policy’s death benefit (subject to qualifications), which could be used to help cover expenses associated with long-term care. This customized strategy may help you protect your financial and retirement assets while also helping to provide confidence that you’ll be able to fund potential long-term care needs.
Bayntree Wealth Advisors, located in Phoenix and Scottsdale, Arizona, provides comprehensive financial planning and wealth management. The Bayntree team specializes in all aspects of financial health, including retirement planning, risk management, investment advice, tax strategies, estate planning and insurance.
Bayntree does not provide specific legal or tax advice. Please consult with your tax advisor or legal professional for guidance with your individual situation.
25 Genworth Financial. April 2016. “Genworth 2016 Cost of Care Survey.” https://www.genworth.com/corporate/about-genworth/industry-expertise/cost-of-care.html. Accessed Nov. 30, 2016.
Actual rider benefit amount will vary according to the rules and restrictions of the specific life insurance product selected and will reduce the ultimate death benefit and cash value. Some accelerated benefit riders may require an additional fee; riders and/or life insurance products may not be available in all states. Accelerated benefits are not a replacement for long-term care insurance and are subject to eligibility requirements. In most cases, a licensed physician must deem the insured incapable of performing at least two of six activities of daily living to qualify for benefits.