By Alex Veiga
Many of us hold on to an idyllic vision of our golden years, imagining we’ll be in good health and living self-sufficiently in our own home.
But that scenario is likely to get dashed. On average, nearly 70 percent of 65 year-olds will eventually need some form of long-term care, according to the U.S. Department of Health & Human Services (HHS). And HHS estimates that 20 percent will need it for more than five years.
Whether that means round-the-clock supervision or a caregiver dropping by your home to help you with personal care and other tasks, it pays to prepare financially well before you retire.
“Not enough people have some plan in place,” said Jamie Hopkins, associate director of the retirement income program at The American College. “It’s a lot of self-funding and relying on family members and Medicaid.”
Here are some things to consider when preparing for the possible financial burden of long-term care:
1. Know the options — What constitutes long-term care can vary widely.
It’s generally defined as the services someone may need to handle their basic, daily activities, or rehabilitation that extends beyond 90 days.
Such services are typically provided in one of three settings: at an assisted-living facility, at home with the aid of a caregiver, or in a nursing home.
Assisted-living facilities generally don’t accept Medicare and Medicaid, said Chris Orestis, CEO of Life Care Funding, which converts life insurance policies into protected long-term benefit funds.
Nursing homes generally have the broadest range of services, including 24-hour supervision. Medicare primarily pays for them, but Medicaid can also pay for those who meet annual income limits.
2. Consider costs — Long-term care costs hinge on the type of services provided and where.
A private room in a nursing home cost an average $6,965 per month in 2010, according to HHS. A semiprivate room ran about $6,235 per month.
By comparison, a month of care in a one-bedroom apartment at an assisted-living facility cost an average $3,293 per month.
Keep in mind that women need long-term care about 3.7 years, on average, while men need about 2.2 years.
This interactive map from Genworth Financial lets users compare cost of long-term care across the nation: www.genworth.com/corporate/about-genworth/industry-expertise/cost-of-care.html.
3. Understand Medicare & Medicaid — Once you’re 65, you may be able to get some of your long-term care costs paid for by Medicare and possibly Medicaid. But there are key differences.
Medicare will pay for long-term care if your doctor prescribes rehabilitation or other skilled services — whether they’re administered in your home or in a nursing home. Medicaid, which is administered by each state somewhat differently, covers a wider scope of long-term care services, but one must meet income and asset requirements.
In most states, the asset limit is about $2,000 for an individual and $3,000 for a couple that’s living together. That has long-inspired retirees in need of long-term care to spend down, or give away their assets so they can qualify for Medicaid. But the government will look at applicants’ finances going back five years and factor in assets that they no longer have to gauge whether they meet the requirements.
Still, in some states, it’s possible to buy long-term care insurance and the government will let you reduce your assets as you try to qualify for Medicaid by the amount of insurance you purchased.
So, if you bought $200,000 of insurance, you can effectively retain $200,000 in assets and still qualify for Medicaid, Hopkins said.
For more details see: longtermcare.gov/medicare-medicaid-more.
4. Decide how to pay — Generally, there are three options: Tapping retirement savings, seeking insurance coverage or relying on Medicaid and Medicare.
Experts suggest using a combination that best suits your needs.
It might be worth looking into long-term care insurance, which reimburses policyholders a set amount to cover costs.
Another option is to convert a life insurance policy into a long-term care benefit plan. This basically means selling your policy to a company that will pay out between 30 percent and 60 percent of the full benefit when you need long-term care. Any funds you don’t end up using go to a beneficiary of your choice.
5. Don’t put it off — The best time to start preparing for possible long-term care costs as you age is while you’re in your late 40s-to-mid 50s.
“Mid 50s is probably the sweet spot for people, because there are a lot of people still eligible for long-term care insurance,” Hopkins said. “What happens in your 60s and 70s is people start worrying about this and they become uninsurable.” — AP
