As you grow old, it becomes more and more likely that you will need some help with everyday tasks like dressing, bathing, eating, and other activities of daily living. You may also need daily medical care for an extended period of time. According to a 2005 study, 69% of individuals aged 65 and up will need long-term care at some point in their lives. Unfortunately, paying for long-term care may not be easy: A recent study by Fidelity found that the average couple will have long-term care expenses in retirement totaling around $130,000.
Many people wrongly assume Medicare will help defray any necessary long-term care expenses. Medicare will not cover most long-term care expenses, because they are not considered medical treatments, though it will pay for the first 100 days of nursing-home care. Meanwhile, Medicaid will cover the cost of some long-term care expenses, but this program is intended primarily for low-income individuals and won't kick in unless your income is below the threshold set by your state (generally about $2,200 per month for 2017).
Long-term care insurance
Retirees with high income or a lot of assets probably won't qualify for Medicaid, so long-term care insurance could be a big help. Premiums can be high, but you can get a significantly better rate if you sign up for a policy while you're in your 50s or younger. According to the American Association for Long-Term Care Insurance, as of 2012, a couple signing up for insurance at age 55 would pay on average $2,466 per year for a joint policy, while a couple aged 60 would pay an average of $3,381 per year. Most policies will cover long-term care no matter whether it's given in your home, a nursing home, an assisted living facility, or a hospice. That said, check your policy's fine print to confirm before you sign on the dotted line. Different policies include different options, including how much the policy will pay per day, its lifetime maximum payout, what services it covers, and various optional benefits. Do your homework before you choose a policy and don't hesitate to ask your insurance agent to clarify anything you don't understand.
The least complicated but often most difficult way to pay for long-term care is to put aside enough extra money in savings to pay for the costs yourself. Remember that the average cost of long-term care is $130,000. If you don't think you can realistically set aside that amount or more, all while saving for retirement, then you should probably look for another way to pay for long-term care. However, if you can manage to save enough, then self-insuring is the best option. After all, if you end up never needing long-term care, then you could spend that extra money on other things or leave it to your heirs.
You may assume that if you need long-term care, your family will take care of you. However, if the time comes when you need such care, getting it from your family may not be an option. Your children and other family members may have moved away in the meantime, or they may have gained responsibilities that make it impossible for them to take proper care of you. Even if your family would now be able to provide the care you need, it's wise to secure some other means of financing your long-term care in case your family's situation changes in the future.
Preparing for long-term care
Given the odds that you'll need care one day, it's crucial to come up with a plan to pay for it -- and perhaps a backup plan as well. Buying long-term care insurance is the simplest and safest option. It's expensive, but if you can afford it, a good insurance policy can buy you something nearly as valuable as medical care: peace of mind.
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