According to a survey by AARP, declining health (and the associated costs) is a top worry of retirees. This is a valid fear since the costs of long-term care are not covered by Medicare and can have a devastating impact on a retiree’s assets and standard of living.
Seven out of ten retirees will need some sort of long-term care assistance, yet few retirees have a long-term care plan. During the three-year span that long-term care is needed on average, a retiree could easily spend between $144,000 to $288,000 on long-term care costs. A married couple could have over a half-million dollars in health care costs to cover.
As an independent insurance professional, Yvonne Marsh can help you navigate the ins and outs of factoring healthcare into your customized financial plan.
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What Does Medicare Cover?
Medicare’s coverage of long-term care costs is minimal. For example, Medicare will pay for some medically related home health care costs if your need is “intermittent” (once a week for 3 weeks). Medicare does NOT pay for an assisted living facility, and it will only pay for your first 100 days of skilled care in a nursing home IF that time was preceded by a 3-day in-patient hospital stay. Medicare simply does not provide protection from the financial calamity that long-term care costs create.
The Financial Impact to You & Your Family
In 2020, the cost for home health care or assisted living was over $4,000/month, and the cost for a semi-private room in a full skilled facility was over $8,000/month. These costs are rising at an average rate of 5.5% per year.
Unfortunately, risks to one’s retirement lifestyle rarely happen in isolation. Retirees who suffered a significant health trauma in 2008 likely also lost over 35% of their savings in the stock market, forever altering the trajectory of their remaining retirement years.
If you are in the lucky 30% of people who never need long-term care, you could still end up wasting your retirement years in frugality and fear, saving for the “what-if,” only to end up leaving more money to your heirs than you ever intended.
If you are in the 70% of people who do need long-term care, it is likely that the bulk of your retirement savings is in pre-tax IRA and 401(k) accounts. Because every dollar withdrawn from these accounts is taxable, you effectively increase the cost of your care by your tax rate, which is 22% to 32% for most retirees. So instead of your care costing $4,000 to $8,000/month, it will cost you from $5,125 to over $10,000/month. Sadly, the savings you worked a lifetime to build is being doled out to healthcare providers and facilities.
Even more worrisome for retirees facing these healthcare costs is the unknown of how long their savings will last before they have to rely on Medicaid. This governmental program is a safety net that ONLY covers full-skilled nursing homes, not assisted living or home care. If you don’t meet the requirements for a full-skilled nursing home, your family members would be forced into being your caregiver or paying for your care.
Making a plan that will give your loved ones the financial ability to be your care coordinator rather than your care giver is the greatest gift you can give them.
The Marsh Approach
At Marsh Wealth Management, we can recommend multiple solutions to the vexing problem of long-term care and help you determine which is the best fit for you and your loved ones. With a plan in place, you can give your family peace of mind and give yourself permission to spend money on what brings you joy in retirement.
Health Savings Accounts
If you are under age 65 and use a high-deductible health insurance plan, are you taking advantage of the triple tax savings benefits of Health Savings Accounts? We’ll educate you on how they are tax-deductible, tax-deferred and tax free to use for health care costs in retirement. And so easy to implement!
Medicare insurance can feel like an alphabet soup. Since you only have a once-in-a-lifetime ability to enroll in a Medicare Supplement plan without medical underwriting, understanding the options from the onset is critical. The team at Marsh Wealth Management will explain the ins and outs of traditional Medicare versus Advantage plans. We have a dedicated Medicare insurance specialist on staff that can help you sort through your many options for supplement plans, Advantage plans, and prescription plans. And we’ll encourage you to review your coverage periodically to be sure it’s giving you the greatest protection. Because we are independent insurance professionals, we can look across many companies to find the best fit for your needs.
Long-Term Care Insurance
One option is to buy traditional long-term care (LTC) insurance, where you pay an annual premium, much like your homeowner’s policy. These policies provide a daily or monthly dollar benefit amount for a defined period of time; you can also include an inflation option where the benefit amount increases each year you own the policy. Most policies cover home health care, assisted living, adult daycare, and full-skilled care. Importantly, the benefits are tax-free. But in most cases, these policies are “use it or lose it.” Like a homeowner’s insurance policy, you pay it and hope you never have to use it; but either way, you don’t get the premiums back.
Asset-Based Long Term Care
Another option, and a preferred choice among our clients, is to fund an asset-based long-term care insurance policy. This hybrid approach combines a long-term care policy with a life insurance policy. It provides all the pros of the traditional LTC policy, including tax-free benefits, but with a few more:
It is more investment-based, so it can be funded either once as a lump sum, over 5 to 20 years, or even annually.
If you choose a multi-year payment plan, the premiums are guaranteed not to increase.
If you never need it for home health or other long-term care costs, it has a tax-free death benefit for your heirs.
You can cash out of the policy if you change your mind or win the lottery and don’t need it anymore.
Marsh Wealth Management can help you develop a healthcare planning strategy that will bring you and your family peace of mind so you can enjoy the years ahead.
for peace of mind in retirement