healthcare in retirement

A research study from the National Bureau of Economic Research estimated that an average 50-year old has approximately a 53% to 59% chance of entering a nursing home during their lifetime. And, 14% of people need long-term care for longer than five years. When you consider that the average rate for a private room in a nursing home is $100,375 a year, covering long-term care costs is a major feat. Without proper preparation, you may be forced to liquidate assets you never wanted or planned to liquidate if you need long-term care down the road. If your chances of needing long-term care are greater than those of a coin landing on tails, why would you not plan for long-term care costs?

You Can’t Necessarily Rely on Medicare and Medicaid

Under most circumstances, Medicare only covers short-term stays in skilled nursing facilities if you were formally admitted to a hospital for three days. If qualifications are met, Medicare will pay the full cost for the first 20 days, and a portion of the cost for the following 80. After 100 days you are responsible for covering costs. Even if you purchase a Medicare supplemental insurance policy, you’ll need to find another way to cover long-term care costs.

While Medicaid will cover a large portion of long-term care costs, there are strict functional and financial requirements to qualify. To start with, applicants must be 65 or older, and have a permanent disability or be blind. The asset limit to qualify for Medicaid in California is $2,000 for single filers, and $3,000 for married couples, and the home equity limit is $858,000.1

The Cost

Long-Term Care refers a range of services that you may need, such as help with dressing yourself, eating, mobility, and housekeep. LTC services are generally provided by an assisted-living facility, at home with the aid of a caregiver, or at a nursing home. In an assisted-living facility, the U.S. national average for care in a one-bedroom unit costs approximately $3,628 per month. And, the average cost for a private room in a nursing home is $7,698 per month.

The Problem with Paying Using Retirement Accounts

If you’re thinking of paying for long-term care out of a pre-tax retirement account such as a 401(k) or IRA, consider the tax burden you would incur. It could mean pushing yourself into higher tax brackets, and potentially draining your retirement accounts faster than you had planned. And, keep in mind that taxes rates are relatively low right now, and could be higher in 30 years.

Long-term care costs can drain your savings late in life, and it’s estimated that 50% of retirees today will need long-term care at some point in their lives. Rather than flip a coin and hope for the best result, you can take steps to help protect your assets from high long-term care costs. There are several options for how to do this, and the professionals at Epstein & White can help you choose the one best suited to your unique financial situation and needs. Because a long-term care plan should be tailored to the individual, we offer complimentary long-term care reviews.