You've spent years perfecting your portfolio's risk profile, allotting cash into securities and bonds and taking every other necessary step before leaving the world of employment. But with more than 60% of Americans over 40 years old doing little or no planning for ongoing living expenses like long-term care, many are missing a key weapon in their retirement arsenal.
Looking ahead
Long-term care can be costly because of its labor-intensive nature, as well as the duration of care needs. For those approaching retirement age, planning for future needs of paid care is an important issue that many choose to overlook. Based on a Commission for Long-Term Care study submitted to Congress in 2013, 30% of adults 40 and over haven't begun planning for ongoing care expenses, with 30% of those saying it's not a topic they want to think about.
Many other soon-to-be-retirees will cite the availability of governmental aid, which would be capable of covering their needs -- but this hinges on one big problem: Most people underestimate the likelihood of needing extensive care in the future.
Long-Term Care Needs of 65+ Adults by Percentage | The Motley Fool | Data from the Commission for Long-Term Care Study 2013
As the infographic shows, nearly 70% of adults will need some type of long-term care during their retirement, with over half needing care services for more than a year.
Public limitations
The risk of underestimating the cost of any future care needs is one that can seriously undermine your retirement planning. While it's true that both Medicare and Medicaid exist to help seniors (and select others) with the cost of care, neither system is capable of covering all of your expenses.
Medicare is specifically targeted at short-term care needs, which can be helpful to those within the 17% of adults that will need less than a year of long-term care services after they retire. For the remaining population of retirees, Medicaid may seem like a viable option, but it, too, has limitations.
Even if you find yourself eligible for Medicaid assistance, the benefits may not meet all of your financial needs. Based on the annual survey of long-term care costs from Genworth Financial, the average daily rate for a 24-hour nursing home ran from $207 to $280, while 2012 data showed that Medicaid provided $178 per day to beneficiaries for that type of care.
With costs expected to continue rising in the coming years and Medicaid premiums expected to stay relatively flat, there may even be a decline in benefits for future retirees. No one with the power to begin saving for future expenses should plan to rely fully on either of these programs.
Personal limitations
For those who haven't begun planning, income and assets are the first sources for funding care expenses in retirement. That means your annuity income, your dividends, and your home (among other sources).
Though the data is a bit dated, a 2005 study found that only a third of older adults had non-housing assets sufficient for covering the cost of a year in a nursing home (or $70,000). Only 54% of older adults surveyed in the study had more than $10,000 in non-housing assets.
Following the financial crisis in 2008 and 2009, it's likely that those figures have fallen, making long-term care a bigger financial burden to the average retiree.
Making the right choice
Though there are a few specialized products for the purpose of covering future long-term care expenses, you can find more information on your options through AARP, your state health resource, and other outlets. But the biggest choice you have to make is to begin preparing as early as possible.
Your retirement doesn't have to be sidetracked due to unexpected costs of long-term care. Instead, take the proactive stance that you may one day need paid care on an ongoing basis and begin taking the steps to save for the costs of that support.
