Retirement is an exciting milestone, which is why it's no surprise that around 70% of workers are looking forward to it, according to a recent survey from the Employee Benefit Research Institute (EBRI).

However, that same report also noted that roughly a third of participants said they were dreading retirement, and 6 in 10 workers admitted that planning for retirement was stressful.

As you get older and retirement is looming, it's normal to get knots in your stomach thinking about whether you're ready. Do you have enough saved to last the rest of your life? How will you cover healthcare costs? How will Social Security benefits factor into your retirement budget? There's one expense, however, that trips up about half of soon-to-be retirees: long-term care.

Man sitting at a table looking at papers with money in front of him

Image source: Getty Images

Long-term care: A sneaky retirement expense

Only around 52% of workers said they're at least somewhat confident they'll be able to afford long-term care in retirement, according to EBRI's report, and just 15% considered themselves "very confident" about their ability to cover this particular expense.

Long-term care can be a sneaky expense in retirement, because when you're in your 50s and 60s and still relatively healthy, moving into a nursing home is probably one of the last things on your mind. Even if you are thinking about it, you may assume that Medicare will cover those costs, or that it won't be much more expensive than your monthly mortgage payment.

But if you're not prepared for this cost, you could end up blindsided by it. The average cost for a semi-private room in a nursing home is nearly $7,000 per month, according to the U.S. Department of Health and Human Services, and hiring a health aide to come to your home and help with household tasks can run you around $20 per hour. 

As if those numbers aren't scary enough, Medicare also won't cover most types of long-term care. If it's medically necessary, Medicare may cover a stay in a skilled nursing facility. But it typically doesn't cover custodial care -- or help with everyday tasks like cooking, dressing, or bathing -- whether it's in a nursing home, assisted living facility, or your own residence.

Roughly 70% of today's retirees will need long-term care at some point in their life, according to the U.S. Department of Health and Human Services, and of those who need it, 20% will need it for at least five years. If you don't have a plan to cover the costs of long-term care, it could drain your retirement fund in no time.

Budgeting for long-term care

Because the majority of retirees will need long-term care sooner or later, it's smart to prepare for it early to avoid the sticker shock. One way to do that is to opt for long-term care insurance.

Long-term care insurance can be expensive, but paying a couple thousand dollars per year in premiums can seem like a drop in the bucket compared to spending $7,000 per month out-of-pocket to cover nursing home costs.

The key is to buy it earlier when you're younger and healthier -- after all, insurance companies will see you as a greater risk (and therefore raise your rates or flat-out refuse to insure you at all) if you wait until you need long-term care to buy insurance. For a 55-year-old couple, the average cost for long-term care insurance is around $2,500 per year, according to the American Association for Long-Term Care Insurance, while the average 60-year-old couple can expect to pay around $3,400 per year in premiums. 

To pay for the notoriously high long-term care insurance premiums, a health savings account (HSA) may be able to help cushion the blow. An HSA is essentially a retirement fund just for healthcare costs -- your contributions are tax-deductible upfront, then you also won't pay taxes on withdrawals as long as the money goes toward eligible medical expenses.

There are some restrictions around HSAs, however. First, you're only eligible to open one if you're enrolled in a high-deductible healthcare plan (for 2019, that's a deductible of at least $1,350 for individuals or $2,700 for families). Also, if you are eligible for an HSA, there are limits to how much you can contribute each year. For 2019, individuals are allowed to contribute a maximum of $3,500 per year (or $4,500 per year for those who are age 55 and older), and families can contribute up to $7,000 per year (or $8,000 per year for the 55+ crowd).

The tax breaks make the HSA an appealing choice for where to put your cash as you're saving for healthcare expenses, and these savings can go toward long-term care, long-term care insurance, deductibles, or most other types of medical costs that may arise during retirement. And if you need to withdraw that money for non-medical reasons, you can still do so -- you'll just need to pay income tax (and a 20% penalty if you're under age 65).

When you're cruising through retirement, long-term care expenses can quickly knock the wind out of your sails. But these costs don't have to crush your retirement dreams. The earlier you prepare for them, the easier it will be to enjoy retirement to the fullest.