During their self-establishment phase, most young, healthy Americans are focused on beginning their career and families, saving for a home and beginning their retirement nest egg. What many may not realize is that retirement is not the only long-term goal that should be on their radar. With roughly half of Americans who live beyond age 65 (National Association of Insurance Commissioners), requiring long-term care there is a good chance today’s 20- and 30-year-olds will spend the later years of their lives needing long-term care. It is an expensive situation, if not properly prepared for, could be a drain on finances and leave them dependent on the government to survive.
Families go broke quickly trying to provide long-term care for a loved one. Unfortunately, too many people wait until they are already facing a serious health issue before they start trying to figure out how the world of long-term care works.
If you’re convinced that long-term care is something that happens to others, but not to you, you could be right. But is that a gamble worth taking with your finances at a time when your income may be winding down or even fixed?
The average monthly nursing home cost is $7,148 for a semi-private room and $8,121 for a private room, according to the Genworth 2017 Cost of Care Survey. The average monthly cost for an assisted-living facility is $3,750. So much for living rent-free after paying off the mortgage.
Like so many things in life, education and preparation are key. A few factors related to the cost of growing old that are important to know include:
- Medicare and Medicaid are not the same. These two similarly named programs confuse many people. Medicare is a federal program that provides health care for people 65 and older. It does not cover long-term care. Medicaid provides health care for people with very low income. It does cover long-term care, but with caveats. The person must qualify financially and meet the definition of medical necessity. This means their income and assets must be below the poverty level. Older people who need to go into a nursing home sometimes deplete their savings so they can qualify for Medicaid.
- The cost of some care is all on you. Most forms of home care and assisted living are private pay, which means you need resources other than Medicaid to cover the monthly out-of-pocket expenses.
- Long-term care insurance can help. Many people buy long-term care insurance, which can pay for nursing home, assisted living and at-home care. A big concern here is that someone might fail to make their premium payments and let the policy lapse before they can use it.
- Life insurance can be a lifeline. One untapped resource for many seniors is the life insurance policy that they thought wouldn’t pay anything until they died. The owner of a life insurance policy can exchange it for long-term care benefits to cover any form of care they choose.
Many people don’t really grasp how much it can cost to grow old, partly because it’s hard for them to think of themselves in a nursing home someday. But if you take the time to understand what it all means – and the options you have for paying for long-term care – then you can avoid putting your older self in a precarious financial position. So, along with planning for buying a new home and saving for retirement, it may well be worth the investment to account for the added costs of long-term care when planning for the future.