Where do you see yourself when you picture the later years of retirement? Are you at home, in an independent living community, or in an assisted care facility?
Although it’s not fun to think about, most of us – nearly 70% – will need long-term care in our senior years. But choosing which type of long-term care is best for you or your loved ones can be tough, especially because of the costs involved.
Today, we’re exploring how you can prepare for the cost of long-term care with just five simple steps.
How to Prepare for the Cost of Long-term Care
1. Know your options (and their costs)
One of the best ways to prepare for potential long-term costs is to know a rough estimate of what you’ll need to pay for. From in-home care options to facilities, various care options are available for your needs and budget.
Whether you’re considering care for yourself, a parent, a spouse, or another loved one, it’s important to start conversing with your family about what kind of care would be the best fit early on. It is much better to have this conversation before it becomes more work. Think about how your parents dealt with this. Are there conversations you wish you’d had?
Costs for in-home care vary greatly depending on the type of care, location, and specific service you choose, which makes it more difficult to estimate total costs. However, Genworth (a financial life insurance company) conducts a Cost of Care Survey, which offers a great starting point.
You can filter costs by location and payment period and even use their prediction tool to see what costs might be like. Remember that these are national statistics and vary widely on the type of care needed. It is better to check local resources if you are trying to plan soon.
For example, the median cost of an in-home health aide here in Corvallis was around $6,101 per month as of 2021 (the most recent data available). That same long-term care in the same city is estimated to cost $8,199 by 2031. (These numbers are based on 44 hours of care per week).
While in-home health aides are a more expensive option, they also tend to give you and your loved ones more freedom and comfort. If you require only a few hours of help daily, this could be a more affordable option.
- Independent living communities are for residents who can function for the most part without assistance but may need access to help or want to be socially active.
- Assisted living communities are for residents with limited mobility and need assistance bathing, dressing, eating, or taking medications.
- Other (Skilled or Special Care) are for individuals needing more intensive or specialized care, such as those with dementia.
The more intensive the care is, the more you can expect to pay. Depending on the room type, You can expect costs to vary within these facilities. For example, a semi-private room in a nursing home facility in Corvallis as of 2021 costs about $10,190 per month, while a private room costs $10,889 monthly. Independent living can cost around $3,500-$5,000, depending on your room and the additional services you require.
2. Be proactive in research and saving strategies
If the above numbers have your head swimming, you’re not alone. The costs of healthcare are high, especially for those in retirement. Fidelity estimates that the average 65-year-old couple will need $315,000 saved just for healthcare expenses in retirement.
Long-term care policies are a good way to prepare, but you must start researching before you turn 60. If you have an annuity, you can exchange it for a hybrid annuity/long-term care policy.
Hybrid policies are popular because if you end up not using them for long-term care, they have assets that beneficiaries can inherit. However, your coverage is usually limited to the amount you put into the annuity.
Luckily, there are strategies you can use to make the most of your savings. Researching Medicare programs and contacting your local SHIBA volunteer can help ensure you have the right Medicare supplemental plan. Medicare does not pay for long-term care services, but having the right medical plan can help save money.
Planning with an elder law attorney can also help you look at your assets and prepare if you feel you won’t be able to afford long-term care.
Another example is a Health Savings Account (HSA), which lets you save money and withdraw it tax-free to pay for certain medical costs.
You must meet certain rules and criteria to qualify for an HSA. For example, you can’t contribute to an HSA if you’re on Medicare and can’t have been claimed as dependent on someone else’s tax return the previous year. You can find more about HSA requirements here.
Note: HSAs aren’t the only tax-optimization savings strategies for long-term care – connect with your financial advisor to learn more about which savings vehicle(s) might be best for you.
3. Consider insurance
Long-term care insurance can also help you manage medical costs – although this will depend on your budget/income, family health history, and other factors.
The thing about long-term care insurance is the sooner you get it, the more affordable it is. If you purchase it in your 50s or 60s, your premium will likely be much lower (as low as $2,500 per year for a couple) than if purchased after you turn 70 ($14,000 or more).
The good news is that long-term care insurance premiums can be deducted as medical expenses up to a certain point, depending on your age (see page 17 here if you want to learn more about deduction limits).
4. Review and update your plan regularly
Keep in mind that changes to your health, job, lifestyle needs, and more can impact what long-term care is right for you.
You may choose to downsize your home and now have a significantly higher budget for your healthcare needs. It may even happen that you choose one type of long-term care, like an in-home aide, but later decide that the social network of a nursing home would be a better fit. This is all to say that flexibility is your friend.
To ensure you remain on track to cover your long-term care expenses, make a reminder to review your financial plan each year or as you experience any major life shifts.
5. Consult with a professional
Lastly, remember that you don’t have to do this alone. There are experienced financial professionals (like our team here at Clarity) who can help you explore your care options, stay on track with your savings, and adjust as needed.
If you’re looking ahead at long-term care costs, these five steps can help you move confidently toward your goals.
Another good resource in Oregon is the Aging and Disability Services website. They have people to talk to about resources and programs.
Schedule a Meeting with Clarity
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