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This Common Retirement Mistake Could Cost You Nearly $250,000

By Katie Brockman – Sep 22, 2019 at 3:00PM

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If you're not thinking about this expense now, it could cost you big time later.

When you're saving for retirement, you're bound to make some mistakes. Nobody has all the answers, and there's no one right way to save for the future.

For the most part, these mistakes won't ruin your chances at a comfortable post-work life -- especially if you catch them early and make corrections. However, there are some mishaps that could potentially be disastrous to your financial health.

One of them includes not considering the costs of long-term care. It may not seem like a significant issue, especially when you're still relatively young and have decades before you even think about your final years. But if you don't plan for these expenses now, it could cost you hundreds of thousands of dollars later on.

Older man and woman sitting at a table looking worried

Image source: Getty Images.

How much does long-term care really cost?

Roughly a third of workers age 50 and older don't think they'll live long enough to need long-term care, according to a survey from Nationwide. Furthermore, when asked how much they think long-term care costs, 67% couldn't even provide an estimate. Among those who tried, the average response was around $43,100 per year.

In reality, roughly 70% of retirees will need long-term care at some point, according to data from the U.S. Department of Health and Human Services (HHS). Also, the average semiprivate room in a nursing home costs around $6,800 per month, or $81,600 per year -- nearly twice what the survey respondents estimated. And HHS found that among those who do need long-term care, the average person requires it for around three years. At $81,600 per year, that's a total of $244,800.

The kicker here is that Medicare typically doesn't cover long-term care. While it will usually cover short stays in a skilled nursing facility if the care is considered medically necessary, it doesn't cover custodial care, like staying in a nursing home.

That means if you're not planning for long-term care, you could be in for a rude awakening when you have to pay for it out of pocket. It can be especially challenging because if you end up needing it, you'll likely be decades into retirement with little to no savings left. Although you'll receive some help from Social Security, your benefits won't be nearly enough to cover $6,800 per month.

For that reason, it's crucial to think about how you'll cover these costs long before you retire. Moving into a nursing home is probably the last thing on your mind right now, but the earlier you start preparing for long-term care, the better off you'll be.

When to start preparing for long-term care costs

Even though you likely won't need long-term care for several decades, it's never too early to start preparing. At the very least, consider how this expense will factor into your retirement plan. If you already have a saving goal in mind, you may need to adjust it to account for long-term care.

Some people may argue that it's not necessary to start preparing now when you don't know if you'll even need it. Or perhaps you think your children or grandchildren will take care of you in your old age, so you're not expecting to have to move into a nursing home.

But "better safe than sorry" surely applies here. If you prepare for these expenses but don't end up needing them, you'll have a lot of extra money later in life. Then consider the reverse: not preparing for it and needing it; you'll be in a heap of trouble.

There are a couple of options. First, you can build these costs into your retirement plan. Although you can't predict exactly how much you'll need, it's safe to assume a couple of hundred thousand dollars. The earlier you account for these costs, the easier it will be to boost your savings.

The second option is long-term care insurance. It can defray the costs of care so you're not left paying for everything out of pocket. But it's not cheap -- and the longer you wait to sign up, the more you'll pay. The average 55-year-old couple pays close to $2,500 per year in premiums, according to the American Association for Long-Term Care Insurance, while the average 60-year-old couple pays around $3,400 per year. And if you wait too long, you might be denied coverage completely. While insurance can be costly, it may be worth it if you face hundreds of thousands of dollars in expenses later on.

There are so many factors to think about when preparing for retirement, and when you're young, long-term care is likely at the bottom of your list. But if you wait until you need it to think about how you'll pay for it, that will be too late. By preparing well ahead of time, you'll make your later years as stress-free as possible.

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