Many seniors look forward to turning 65 because that's when Medicare eligibility generally begins. In fact, some people specifically wait that long to retire because they need to make sure they have health coverage before ending their careers.
But here's a news flash -- Medicare will not pay for every health-related service you need. Many retirees are shocked to learn that Medicare won't pay for dental cleaning, eye exams, or hearing aids. And that's not all.
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Medicare also won't pay for one of the biggest expenses you might encounter later in life -- long-term care. And if you don't come up with a solid plan to pay for it, you might end up destroying your finances.
Long-term care costs keep going up
The reason Medicare won't pay for long-term care is that it's not medical in nature. Medicare will cover the cost of treating an injury or illness. But losing mobility due to age does not fall under either category.
For this reason, Medicare will not pick up the tab if you end up needing a home health aide, nursing home, or assisted living stay. And that's where things could get very dicey, financially speaking.
Here's a rundown of average long-term care costs in 2024, the latest year for which data is available, according to a report by Genworth and CareScout:
- Home health aide: $77,792 per year
- Assisted living: $70,800 per year
- Nursing home with shared room: $111,325 per year
- Nursing home with private room: $127,750 per year
And these are only averages. In some parts of the country, long-term care can cost a lot more. And the scary thing is, you have no way of knowing how long you might need that care for. It could be weeks, months, or years. So it's important to have a way to pay for it.
Ways to pay for long-term care
Since you can't count on Medicare to pay for long-term care, it's important to take matters into your own hands. One option, of course, is to boost your retirement savings.
Some people are able to self-fund long-term care by bringing large IRA or 401(k) balances into retirement. That may work for you if you're able to save a lot of money.
But remember, you may not need long-term care until later on in the retirement. If you retire at 67 with a $2 million IRA or 401(k) balance, by the time you need that care at age 87, your savings may be pretty whittled down.
That's why a better option may be to buy long-term care insurance. These policies are specifically designed to cover the costs above.
Because the cost of long-term care insurance tends to rise with age, the sooner you put coverage in place, the lower and more affordable your premiums might be. Your 50s are generally a good time to get this type of insurance because that way, you're likely to qualify for a good rate based on your age and health, but you're also not signing on to pay those premiums for too many years.
If you have money in a health savings account, or HSA, you can typically use those funds to pay for long-term care insurance premiums. Unfortunately, though, you generally cannot use an HSA to pay for long-term care itself.
Planning ahead matters
A lot of people don't think about paying for long-term care until it's too late. Medicare may cover a number of your healthcare needs in retirement. But for long-term care, you're on your own. The sooner you start planning for that expense, the less likely it may be to wreak financial havoc.
