It's hardly a secret that healthcare can be a massive expense for retirees. But there's a related expense that many workers accidentally neglect to plan for -- long-term care.
Long-term care refers to non-medical care in a setting like an assisted living facility or nursing home. It can also refer to an in-home aide who's needed to help with everyday living activities.
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It's important to note that long-term care often arises not as a result of an injury or illness, but due to aging. That's an important distinction to make because Medicare won't cover services that aren't medical in nature. As such, seniors are often forced to dip into their retirement savings to cover the cost of long-term care because Medicare won't pick up the tab.
Meanwhile, the Department of Health and Human Services estimates that more than 56% of seniors turning 65 will need some type of long-term service. And the costs can be astronomical.
Genworth's most recent survey on long-term care costs found that a stay at an assisted living facility costs $54,000 a year, on average. A home health aide costs an average of $61,776. And nursing-home care can be even more expensive, with a shared room costing an average of $94,900 a year and a private room costing $108,405.
It's for this reason that workers are advised to put long-term care insurance in place. But even that option is growing increasingly expensive.
When the protection you need is beyond your budget
The typical annual long-term care premium for a 65-year-old costs between $1,700 and $7,225, says the American Association for Long-Term Care Insurance. Meanwhile, the median income for older Americans in 2019 was just over $27,000. As such, forking over upward of $7,000 a year for long-term care coverage just isn't feasible for a lot of people.
But there's a reason some seniors end up with sky-high long-term care insurance premiums -- they wait too long to put that coverage in place. There's definitely such a thing as applying too early for long-term care insurance, as paying those premiums for years on end just isn't financially feasible.
But many people wait until their 60s to secure that coverage. At that point, their health can already be in decline, leading to higher premium costs. So it's important for older Americans looking at long-term care insurance to try to hit that sweet spot. For many, that will be the mid-50s.
Those who secure long-term care coverage in their mid-50s can commonly snag discounts based on their current health. And at the same time, they won't end up having to pay those premiums for an exceedingly long amount of time.
Have a plan either way
Long-term care insurance has its limitations, and every policy is different. You'll need to research your options carefully to determine if it makes sense to get long-term care insurance and what type of policy to buy.
But if you decide to opt out of coverage, then you'll need some sort of backup plan in case long-term care insurance ends up becoming necessary for you. That backup plan could be a padded IRA or 401(k) plan you can dip into. Or it could be a loved one who agrees to step up and help with your care. But if you're going to go the latter route, that needs to be an open and clear conversation.
Long-term care will, for many people, be an unavoidable expense. Do what you can to put coverage in place early on so you're not forced to grapple with bills you can't afford, or make alternate arrangements if long-term care insurance isn't feasible or desirable for you.
