Don’t let long-term care costs derail retirement

No one wants to think about the care they might require in the no-go years of retirement, yet most of us will likely require some sort of care in our elder years. In fact, more than 70% of Americans over the age of 65 are expected to need some form of long-term care at some point in their lifetime, according to the U.S. Department of Health and Human Services.

As many of us know, health care costs can significantly derail finances in any phase of life. However, knowing the increased likelihood that you’ll probably require some sort of care in retirement puts you at an advantage when it comes to planning. If you neglect long-term care costs as part of your retirement planning, the financial consequences can be catastrophic.

There are a lot of misconceptions when it comes to long-term care planning. Many people think long-term care planning is only necessary for those who are very elderly or severely disabled. Others believe Medicare will cover any medical costs that may arise, they’ll have enough savings to cover it, they’ll give away assets to qualify for Medicaid or they’ll never end up in a nursing home so there’s no need to worry. What many people don’t realize is that it only takes one event - a stroke, a heart attack or a severe fall - to change everything. And without a plan, you and your loved ones will be left scrambling. So let’s break down these common misconceptions and why believing them could be harmful to your financial stability.

 

1. “Medicare will pay for it.” It won’t. Medicare only covers up to 100 days of skilled nursing after a hospital stay, and only under specific conditions.
2. “I have savings; I’ll be fine.” While the nursing home costs vary depending on location and room type, the national average for a year’s stay in a nursing home ranges from about $95,000 for a semi-private room to more than $108,000 for a private room, according to a report from CBS. In Ohio, an assisted living facility ranges between $5,100 and $6,000 per month. Meanwhile memory care can cost anywhere between $7,400–$12,000 per month. And these costs aren’t coming down. They’re rising between 6% and 12% each year. Therefore, even a healthy six-figure portfolio can be depleted in two to three years.
3. “I’ll never end up in a nursing home.” Many believe they’ll avoid institutional care, but home care and assisted living often come first—and they’re expensive too. According to QMedic, the average annual cost for assisted living care is about $64,200. For in-home care, the yearly cost can range from $60,000-80,000, according to SeniorLiving.org.
4. “I can give away my assets to qualify for Medicaid.” Not easily. The state of Ohio enforces a 5-year look back on all transfers for less than fair market value. Mistakes here can trigger penalties and delays in eligibility.

 

Although programs like Medicare and Medicaid have been a saving grace for many families, there are regulations and eligibility requirements that must be met in order to receive benefits. For example, Medicare does not cover long-term custodial care. Part A primarily covers inpatient hospital care and skilled-nursing care up to 100 days after a hospital stay. Other services may be covered under specific circumstances. Part B coverage focuses primarily on preventive care, and Part D covers prescription costs.

As for Medicaid, the program is means-tested, meaning eligibility is based on income and assets. In Ohio, countable assets must typically fall below $2,000. The income limit for nursing home Medicaid is $2,829 per month. The Community Spouse Resource Allowance does allow a healthy spouse to retain $148,420 in assets, however, the look-back period is still five years for gifts and transfers. Violations could result in penalty periods with no Medicaid coverage. Medicaid is also under scrutiny at the federal level. Currently, there’s growing pressure to claw back Medicaid dollars via estate recovery and a potential long-term care tax.

Long-term care costs are also outpacing inflation. If the trend continues, nursing home care could easily top $170,000 per year by 2035. While rising caregiver shortages and an aging population are partly to blame, current pressure on public programs or long-term care taxes could make matters even worse for future retirees, especially for those who are more vulnerable such as women, single retirees or those estranged from family members. Therefore, long-term care planning is crucial.

With no plan or protections in place, you’ll be forced to pay out of pocket until you are broke. In extreme cases, spouses could lose their homes or savings, children may be forced into caregiving roles or face legal and financial stress, or inheritance plans could be entirely wiped out. If you’re in your 40s, 50s or even early 60s, start by taking inventory of your income, assets, and real estate. Then, meet with an estate planning team to review your options. Taking the time to plan now will save you and your loved ones from scrambling when the time comes.

 

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