Retirement Puzzle Piece #4
Health Care and Long Term Care
Learning Video: Health Care and Long Term Care Part 1
It’s critical that you plan well in advance for the considerable cost of health care by adding it into your overall retirement planning discussions and budgeting.
The first unknown to consider here is the potential length of your life. If you retire at age 65 and live until age 90, that’s 25 years worth of uncovered health care costs that you need to account for. Medicare covers medical expenses starting at age 65. But it only covers certain ones and only after you have paid deductibles, coinsurance and certain copays!Many medical expenses are not covered by Medicare and instead are usually picked up by a Medicare Supplement policy that costs you premium. Or the costs will come out of your pocket to cover such expensive items as vision, dental care and hearing aids. And, be weary of an un-planned medical event that can literally wipe out your family's retirement nest egg! Click to read more...
For example, did you know Medicare does not cover the costs of long-term care? Medicaid does. But to qualify for Medicaid you must spend down your assets almost to zero before you qualify.
Fidelity’s 2014 Retiree Health Care Cost Estimate shows that even those who retire at age 65 and are immediately covered by Medicare, can still expect to incur $220,000 in medical costs during their retirement not including the costs of Long-Term Care.
Understanding the Catastrophic Costs of Long Term Care
As part of this financial planning process, it’s important to understand the potential damage that needing long-term care may have on your assets, your family, and your future.
Unfortunately far too many Americans today have made no plans for long term care in their retirement. And it is a topic most people prefer not to consider.
When I talk about long term care (LTC), I’m referring to the long term custodial care necessary if you become disabled either because of a severe cognitive impairment, or a loss of your ability to perform activities of daily living without assistance.
I’m talking about routine activities you can no longer perform on a daily basis like when you’re unable or too frail to prepare food, bathe or use the bathroom on your own; get dressed; or follow medical directives. Many people find it hard to envision themselves needing hands-on assistance with basic living activities like bathing, getting dressed, and eating. The fact is that 70% of people who reach age 65 will require long-term care services at some point in their lives.
But perhaps the bigger unknown – and biggest risk – relates to the length of time for which you may need to receive care. It’s impossible to predict. Some may only need a few months of care. Others might need a few years. Others, such as those with Alzheimer’s disease, might require 24-hour care for as long as 10 years.
The costs associated with needing long-term care can be catastrophic. An Urban Institute Study asserts that long-term care is the leading source of catastrophic out-of-pocket medical costs, which can lead to severe financial problems, if not complete impoverishment.
While it can take decades to accumulate the assets you’ll need to retire comfortably, just a few years of paying for long-term care may threaten an entire lifetime of savings. Too many people in America today completely underestimate the amount of money they may need to cover their health care costs in retirement because they do not think they will ever need long-term care.
How to Cover the Costs of Long Term Care
Choice #1: Medicaid (the safety net for American Society)
Medicaid is the government program for the poor. Among other rules, it requires that you be impoverished to qualify for the program; that is –$2,000.00 or less in assets.
Medicaid reform is here to stay, especially in the New Normal following the recent recession. The message from both federal and state governments is very clear — if you have assets to protect, dependence on government welfare programs such as Medicaid will not be a viable option.
So, be honest with yourself here. If Medicaid offers minimal services and, all too often delivers poor quality of care. And, in most states, only covers nursing homes. And may only offer a space-available facility that is a great distance from your family….How excited do you get about this choice for your LTC needs?
Choice #2: Relying on Family Assistance
If you’ve ever been in a care-giving situation, you understand the physical and emotional toll it can take.
If you haven’t, asked your friends about the financial burden and the strain it puts on their lives. I bet you’ll get an earful about careers put on hold, the time lost for family and outside interests, arguments with siblings and spouses, and sleepless nights filled with anxiety about making the money last. While providing care to loved ones is an act of compassion, placing the burden of care on spouses, children and other family members can create a significant emotional and physical strain on the ones you love most.
Choice #3: Self-Funding (spending down your assets)
With this choice you must set aside significant liquid assets. That’s money you can get at immediately should LTC suddenly become necessary. And, you must be careful or you may deplete your assets too quickly.
Keep in mind that as you self-fund, LTC is the single most catastrophic financial risk you will face. Studies show that 90% of seniors who lose their assets, lose them to the devastating cost of LTC.
Whether you are wealthy or not, paying a reasonable insurance premium to transfer one of the biggest financial threats you may face can be a smart move towards protecting assets and loved ones.
Choice #4: Traditional LTC Insurance
I consider this choice far superior to the first three. Let me explain why. Incorporating LTC Insurance into your financial plan can help protect your assets, reduce the burden of care that would otherwise fall on family members and enable you to receive care in the setting you most prefer, including your home.
The real question is not who will take care of you, but rather what impact providing that care will have on your family and finances. Perhaps the greatest benefit of LTC Insurance is that it can allow loved ones to care ABOUT YOU instead of having to care FOR YOU.
Insurance professionals, like myself, highly recommend LTC coverage at an early age.