Are You Prepared for This $94,900 Annual Expense in Retirement?
When you save money for retirement, chances are good that you’ll be thinking about how to cover the costs of housing, healthcare, food, travel, and other necessities and indulgences.
Unfortunately, there’s a huge expense you could be faced with that you might easily forget — especially if you’re young and healthy. The problem is, if you don’t take it into account and plan for it, you could drain your savings and end up damaging your spouse’s finances or be unable to leave a legacy for loved ones.
You don’t want to find yourself in this difficult situation, so it’s best to begin preparing as early as possible.
This is one huge expense you can’t forget to plan for
One of the biggest expenses retirees will likely face is often overlooked. That expense is long-term care costs. According to the Genworth Cost of Care Survey, the national average cost of a semi-private room in a nursing home is $94,900, while a private room is even more at $108,405 per year.
Obviously, this is more money than most people can comfortably spend. In fact, even a few months of nursing care could cause you to quickly drain your retirement nest egg. And, unfortunately, it’s an expense many people do end up facing. A person turning 65 today has close to a 70% chance of requiring some long-term care service, according to LongTermCare.gov.
Sadly, the cost of care is only going up each year. If you are a long way from retirement, it’s very likely that nursing homes will end up with an even higher price tag by the time you’re in need of their services.
How to prepare to cover long-term care costs
The first step in preparing for huge nursing home expenses is to realize that facing these costs is a possibility. Many people incorrectly assume Medicare is going to cover their nursing services, but in fact, Medicare generally pays nothing at all toward routine custodial care — the kind of care that sends most people to a nursing home.
If Medicare won’t pay for your nursing care, you have three primary options for covering the costs:
- Pay out of pocket. This will require a huge nest egg, especially if you don’t want to spend all your assets on care and leave nothing for loved ones. This will definitely need to be factored into your retirement planning process.
- Rely on long-term care insurance. Long-term-care policies can be a good option, but it’s best to purchase them at a younger age to avoid the premiums becoming prohibitively expensive. You’ll also need to make sure you read the fine print and get a policy that actually provides comprehensive coverage, as some insurers have exclusions or daily limits that can make them ineffective at protecting your finances.
- Engage in Medicaid planning. This typically involves working with an estate planning attorney well in advance of the time nursing home services will be needed. You’ll take steps to protect your assets while qualifying for means-tested Medicaid benefits. This approach can work because Medicaid does pay for nursing home care, but it can require a lot of effort and expense.
It’s up to you which of these three approaches you decide to take. The important thing, though, is that you consider the high likelihood you’ll need nursing care and that you make a plan to afford it without draining your nest egg.
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