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Planning for Long-Term Care in Retirement


According to the U.S. Government’s Administration for Community Living (ACL), today’s 65-year-olds have an almost 70% chance of needing long-term care in retirement. And 20% will need it for longer than five years.  

That could translate into a major expense. The median cost of private room nursing-home care reached more than $100,000 a year in 2020, according to Genworth.  

“Long-term care can be very expensive, so planning for this expense is very important,” says Zachary Bachner, a certified financial planner with Summit Financial Consulting in Sterling Heights, Mich. “[LTC] needs can ruin a retiree’s financial plan if they did not prepare.” 

Create an effective long term care strategy by asking yourself these questions: 

When Should I Start Planning for Long-Term Care? 

In a survey from the Associated Press-NORC Center for Public Affairs Research, a third of respondents aged 40 or older had not created a plan for their long-term care needs. Nearly 40% mistakenly believe Medicare will pay for their long-term care needs as they age. Unfortunately, it does not

That’s why it’s important to have a plan and not ignore healthcare needs that will surely come. 

“Protecting against long-term care costs is a conversation that I have with nearly all of my clients during the planning process,” says Janice M. Cackowski, a certified financial planner with Centry Financial Advisors in Willoughby, Ohio. “I run cash flow scenarios illustrating a need for two to three years of full-time nursing home care to show my client whether they can absorb that cost. And if so, how does it affect their long-term plan.”  

How Can I Fund Long-Term Care in Retirement? 

According to ACL, the average woman requires 3.7 years of long-term care while men average 2.2 years. You can cover the cost by having at least the average amount saved. Based on the 2020 median price of $100,000 per year, that computes to $370,000 for women and $220,000 for men, or $570,000 for a couple. It’s important to note that costs vary dramatically based on geographic location. 

If you don’t have this amount of money in savings, proceeds from a reverse mortgage can help you fund your care. Seniors who have built up a good amount of equity in their homes, may want to consider tapping into this asset, especially if you will be using at-home long-term care.  

What Is Long-Term Care Insurance? 

If you cannot absorb the cost of long-term care or are unwilling to pay out of pocket, Cackowski suggests considering long term care (LTC) insurance. A policy will cover eligible long-term care, and premiums usually rise as you age. 

Bachner notes that there are drawbacks to traditional LTC policies. “Many are considered use it or lose it,” he says. “If you need long-term care, you have a safety net to fall back on. If you end up not needing long-term care, then those assets are typically forfeited.” 

Bachner recommends a hybrid between LTC protection and life insurance coverage. “These policies will provide LTC benefits if there is a need, but there is also a death benefit available if LTC is not needed,” he says. “This protects the LTC savings from going to waste.” 

Cackowski also recommends hybrid life and LTC policies. “This type of policy can offer protection for possible long-term care, but if care is never needed—or only a little care is needed—there is a death benefit that can be passed along to heirs.” 

How Can I Protect My Assets? 

Purchasing hybrid LTC insurance is one way to protect your assets. Another option is to earmark assets for LTC needs, which could include certain investments in your portfolio or the equity in your home.  

The older you are, the more conservative your long-term-care fund should be. You don’t want market volatility to wipe out long-term care funds. Separate those from your spendable assets that you will use until you require long-term care. 

If you want more information about paying for long-term care, visit the U.S. Department of Health and Human Services website LongTermCare.Gov, which provides the latest research that can help you create your long-term care plan.  

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