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The cost of long-term care in retirement

When preparing for retirement, imagining the new lifestyle that awaits you can be exciting. From travel to family time to relaxation, a fulfilling retirement looks different to each individual.

Preparing for the quality of life you desire goes beyond simply ensuring you can support your daily costs and fulfill your dreams. You should address two other looming financial responsibilities: health care and elder care.

Read more to learn about how retirement planning is changing and what you need to know to stay prepared for your golden years.

We Are Living Longer

Thanks to medical advances, campaigns to create more awareness of healthy living, and other factors, retirees are living longer than ever before. In 1970, 10.3% of the total population (20.9 million people) lived to be 65 years old or older. By 2000, that number jumped to 12.4% (34.9 million people). 

The trend continues. On average, a man turning 65 years old today can expect to live to 84.3 years old; meanwhile, on average, women turning 65 years old today can expect to live until 86.6.

Many people will have an even longer lifespan: About one of every four 65-year-olds today will live to be more than 90; and one of 10 can expect to live past 95 years old. 

If you’re in good health, you need to prepare for your longer lifespan and the associated medical costs that come with older age.

Healthcare and Long-Term Care Costs Are Rising

Not only are we living longer but our healthcare costs are also increasing. Today’s average 65-year-old couple can expect to pay $300,000 (before inflation) on healthcare costs during retirement.

This cost doesn’t include your long-term care financial needs.Here are some other essential facts:

  • Retirees spend nearly a third on average of their Social Security benefits on out-of-pocket medical expenses.
  • The average cost for non-medical home care is $20 per hour.
  • A health aide charges $20.50 an hour.
  • It costs $6,844 per month for a semi-room and $7,698 per month for a private room in a nursing home.
  • Today’s average annual cost for assisted living care is $43,539.

Generally, a retiree’s Medicare and employer-sponsored insurance do not cover long-term care costs. Because of this, understanding the financial gap you have in your planning is critical.

Retirement Savings Shortfalls Are Hurting Us

While many people are making strides in preparing for retirement, we may not be saving enough money. The median 45-year-old male’s projected savings shortfall for retirement at 65 is $212,256; meanwhile, the median 45-year-old female’s projected savings shortfall is $268,404.

People are not fully preparing themselves for retirement. You should take an honest look if you have a retirement savings shortfall so you can create a strategy now to fill that gap.

So how do you do that?

You need to have an extended health care plan. The odds of having this kind of need are 50% for women and 33% for men. Some people choose to self-insure against this risk and pay for it out of their own pocket, if they need it. With the odds previously mentioned, those odds are higher than most like. What would happen if you had to stroke a check for $100,000 a year for three years? What if you and your spouse needed care and it cost $200,000 a year? How long could you afford to do that?

Another option is to transfer the risk to an insurance company. You have traditional long-term care insurance which pays a benefit for a specific period of time. This can be used for a nursing home, in home care, and even informal care in the home from a family member. This is the best way to get the most protection for the least amount of money. People often think this kind of insurance is too expensive but when structured properly they can be affordable and a great way to provide protection.

The next option is short-term care. This kind of protection provides benefits for less than a year. The benefit of using this kind of insurance is it is easier to qualify for based on health, and less expensive (because of the shorter benefit period).

Annuities. Most people don’t understand annuities and they can play a wonderful role in someone’s retirement, but they can also provide funds for a long-term care event. The annuity carriers usually refer to these as confinement and to accelerate the allocated funds you have to go into specific kinds of facilities.

The nice things about these annuities and you use your money no matter what. In the event you need care, as income, or even a death benefit.

A newer option is to use life insurance that has living benefits built into it. You have two ways to benefit from life insurance in the event you have a long-term care need.

One option is using the cash value that can grow inside either a whole life or indexed universal life policy. This cash value can grow without a negative impact from a market correction and can be used for many different things, including funding long-term care needs.

The newest benefit in life insurance are the living benefits. Life insurance companies let you accelerate the death benefit, which previously was only available at your death, if you have a long-term care event. Insurance companies refer to these events as a chronic illness. You can accelerate your death benefit in several ways but regardless you will end up using this policy no matter if you need care or pass away. Also, these policies, when built properly, will not have a premium increase like a traditional plan can.

Annuities and life insurance play a key role in retirement so it may make sense to make sure you are using your retirement assets in the best way possible.

Having an extended health care plan may sound complicated, but it is not when you were with advisors that understand all the different aspects of planning for this event.

We’re ready to help you live comfortably in your golden years, so instead of worrying you can focus on enjoying life to its fullest. To start the conversation, please feel free to contact us at any time.

For your complimentary extended health care evaluation, please contact us.

ABOUT THE AUTHOR: Don Meyer is one of the co-founders of Both Hands Financial Group. He got his start in the insurance business over 20 years ago because of his grandfather. His grandfather had to go into a nursing home and the family was not prepared for what that would do. At that time, Don decided he wanted to help families avoid going through the same thing his family did and to this day helping people protect themselves agains a long-term care event is one of Don's greatest passions. Don and all Both Hands Financial Group advisors understand how to protect agains a long-term care event and how that planning works with your retirement planning.