This might be the ultimate good news/bad news scenario: most Americans live longer than ever before, but this means our retirement income needs to last longer. What used to be a 10 or 15-year retirement is now a 20 or 25-year retirement. And healthcare-related costs, unsurprisingly, will need to be adequately met if your retirement years are to be as fulfilling as possible.
Yes, Medicare will cover a major portion of your healthcare needs. But Medicare is very limited in providing for the long-term care you may need, which includes nursing-home care, home health care, and personal or adult daycare for individuals age 65 or older or with a chronic or disabling condition that needs constant supervision. Medicare will cover a hospital visit but not nursing-home costs.
Many people cannot rely on children or family members for support and buy long-term care insurance to help cover out-of-pocket expenses. Otherwise, long-term care expenses would quickly deplete the savings of their family.
While long-term care costs differ by region, it is usually very expensive. In 2020, for example, the average cost of a private room in a skilled nursing facility or nursing home was $105,850 a year. A home health aide costs an average of $54,912 annually.[1]
Many experts suggest shopping for long-term care insurance between the ages of 45 and 55 as part of an overall retirement plan to protect assets from the high costs and burdens of extended healthcare. Long-term care insurance is also cheaper if you buy it younger. In 2020, the average annual premium for a couple, both 55 years old, was $3,050.[2]
Long-term care insurance premiums can be tax-deductible if the policy is tax-qualified and the policyholder itemizes tax deductions, among other factors. Usually, companies that pay long-term care premiums for an employee can deduct them as a business expense.
Long-term care insurance usually covers all or part of assisted living facilities and in-home care. Medicare rarely does. Full home care coverage is an option with long-term care insurance. It will cover expenses for a visiting or live-in caregiver, companion, housekeeper, therapist or private-duty nurse up to seven days a week, 24 hours per day, up to the policy benefit maximum.
Long-term care insurance sometimes gets forgotten in a person’s financial plan. We suspect this might be for two reasons. One, many people mistakenly believe Medicare will cover all health-related expenses. Two, the idea of thinking of nursing-home or hospice care is simply an unpleasant reality many do not wish to acknowledge. But it’s extremely important, no matter how unpleasant the thought might be. You’ve worked so hard to attain a fulfilling retirement, that it’d be unwise to forgo long-term care insurance and compromise all you’ve striven for.
Notes:
[1] https://www.genworth.com/aging-and-you/finances/cost-of-care.html
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