Covering the Costs of Long-Term Care
As medical care continues to advance and our life expectancy increases with time, the chances of needing some form of long-term care will rise as well. In 2019 it was estimated that 70% of people turning 65 can expect to need some form of long-term care services in their lives. Unfortunately, Medicare does not cover this expense, outside of the costs of rehabilitation in a skilled nursing facility for no more than 100 days. So who pays for the rest? What can you do today to plan for this future expense and ensure your financial security when it comes time for long-term care?
First, it is important to know what long-term care is and what it is not. While today’s nursing homes come in all different shapes and sizes, they are just a part of the senior living picture. There are various senior care options where older adults can live more independently with the lower costs for these lower levels of care reflecting a lack of medical needs. Long-term care means you have everyday needs that must be met by a clinical care team and overseen by a physician. In cases of recovery from injuries, surgeries, or illness, rehabilitative long-term care can be short-term in nature. Others will spend months or years in long-term care. It is important to plan for costs across the continuum of senior care and be prepared as your care needs increase over time.
This will come as no surprise, but making an effort to save as much as possible for retirement throughout your lifetime is critical for planning for long-term care costs. Using this method alone, however, can be risky as it is impossible to know how much money you will need and how long you will be in long-term care when the time comes. On average, 1 to 3 years of long term care is necessary, though you must always expect the unexpected when planning for your future financial security.
Health savings accounts are another option for those that have qualified for high deductible health insurance plans. Individuals are able to deposit $3,450 in tax deductible contributions to an HSA and for those with family insurance plans they are able to deduct up to $6,850 annually. Withdrawals from this account are tax free when used for qualified healthcare expenses such as long-term care insurance premiums or long-term care itself.
Long-term care insurance goes well beyond the depths of coverage offered with health insurance. Although premiums can be relatively costly, in comparison to picking up the long-term care tab on your own, this is a more cost-effective solution. The sweet spot to apply for long-term coverage recommended by financial advisors is between the ages of 60 and 65. This is assuming you are in decent health and do not have pre-existing conditions that insurance companies will not cover. Waiting to apply can also lead to missing your window for coverage, being denied coverage, or simply being unable to afford the monthly payments that increase the longer you wait.
It is also important to note that veterans may be eligible to additional assistance through the Veterans Affairs Aid and Attendance. Qualifying individuals can inquire about these benefits through the U.S. Department of Veteran Affairs.
When all other resources have been depleted, Medicaid is available to pick up the cost of long-term care needs. Be aware that the downside of needing Medicaid assistance is nearly all financial assets must be depleted before they you can apply, which also means you may have far less control over where you end up living.
At the end of the day the best thing to do when it comes to long-term care is to plan ahead. Talk to your financial advisor so you can plan the best course of action for you and your finances. Be sure to keep your loved ones informed on your plan so they are not struggling to figure it all out when the time comes.
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