The costs of long-term care can be significant, so it’s vital that you prepare for them. And the more you know about these expenses, the better prepared you will be to deal with them.
To begin, just how expensive is long-term care? Consider this: The average cost for a private room in a nursing home is more than $87,000 per year, according to the 2014 Cost of Care Survey produced by Genworth, a financial services company.
In addition, the average cost of an assisted living facility, which provides a level of care that is not as extensive as that offered by a nursing home, is $42,000 per year, according to the same Genworth study. All long-term care costs have risen steadily over the past several years, with no indication they will level off.
Many people—when they think about long-term care—believe that Medicare will pay these costs, but that’s just not the case. Typically, Medicare only covers a small percentage of long-term care expenses, which means you will have to take responsibility for the rest. Of course, if you are fortunate, you may go through life without ever needing to enter a nursing home or an assisted living facility—or even needing help from a home healthcare aide. Given the costs involved, can you afford to jeopardize your financial independence—or even worse, impose a potential burden on your grown children?
To prevent these events, you will need to create a strategy to pay for long-term care expenses, even if you never incur them. Basically, you have two options: You could self-insure, or you could “transfer the risk” to an insurer.
If you are going to self-insure, you will need to set aside a considerable sum of money, as indicated by the costs mentioned above. If you choose this route but never really need a significant amount of long-term care, you could simply use the bulk of the money for your normal living expenses during retirement and earmark the remainder for your estate. However, if you were to need many years of nursing home care, you could end up going through all your money.
As an alternative, you could transfer the risk of paying for long-term care to an insurance company. Many plans are available these days, so to find the choice that is appropriate for your needs, you will want to consult with a professional financial advisor. Here’s a word of caution, though: The premiums for this type of protection rise pretty rapidly as you get older. Therefore, if you are considering adding this coverage, you may be better off acting sooner rather than later.
None of us can know with certainty what the future holds for us. Ideally, you will always remain in good shape, both mentally and physically, with the ability to take care of yourself. But, as you’ve heard, it’s best to “hope for the best, but plan for the worst.” So, take these lessons to heart… and start preparing yourself for every scenario. iBi
Fran McKay is a financial advisor with Edward Jones at The Shoppes at Grand Prairie.