How to pay for long-term care

Learn more about the financial cost of providing a loved one with long-term care.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
  • Print

As Baby Boomers continue to age, more families will confront the need to provide loved ones with long-term care. While the personal and emotional cost of such care is often significant, its financial cost could be especially challenging for some families.

The high cost of retirement

To understand the long-term care challenge, you'll need to start with the idea that retirement can be expensive, no matter if you are thrifty or are accustomed to spending a lot. According to the latest retiree health care cost estimate from Fidelity Benefits Consulting, a 65-year-old couple retiring this year will need an average of $280,000 (in today's dollars) just to cover medical expenses throughout retirement.1

This number only covers healthcare—not the other piece of the puzzle, long-term care. Odds are, you'll probably face long-term care costs in your lifetime. A study by the U.S. Department of Health and Human Services found that a little more than half of all individuals age 65 and older will need long-term care services and supports.

Types of care

This care can be expensive, especially in major metropolitan areas. Depending on where you live, long-term care in a nursing home will cost at least $50,000 to $100,000 for a year's stay in a semi-private room, according to the Genworth 2017 Cost of Care survey.

Long-term care costs are all over the map. On the low end, adult day health care averages around $18,000 per year. In between this minimal care and nursing home confinement are intermediate types of care, including homemaker services (for cooking, housecleaning, and running errands), home health aides and assisted living facilities.

Payment options

Because few people have the financial means to meet the most expensive care costs out of pocket, planning for future costs should involve a strategy that includes one or more of the following options:

Medicaid. In order to qualify for this government assistance program, beneficiaries must meet stringent qualifications involving both income (varies by state) and so-called countable assets ($3,000 for couples). These levels are extremely low. And if you're hoping for some help from Medicare, know that this insurance pays only for a limited hospital stay immediately after the onset of needing medical care.

Long-Term Care Insurance. This could be expensive, especially if you're older than age 65 when premiums begin to increase most dramatically. If you have health problems, you might not qualify or, if you do, might not be able to afford a policy. Consider cutting insurance costs by buying a smaller daily benefit or increasing the elimination period, which is the time between when care is needed and when insurance payments begin.

Hybrid Insurance. One innovation that may help to cut costs is a hybrid whole life insurance policy. This type of insurance usually offers an either/or option. You can use a portion of the life insurance policy benefits to fund long-term care, which would reduce or eliminate the death benefit. Or if you don't need to pay for care, the policy will pay out its full benefit to beneficiaries. However, understand that this hybrid will not pay full benefits for both life and long-term care. For that, you'll need two policies.

Private Funding. This makes it up to you. Save. Invest. Put more money away into your 401(k) plan and your Health Savings Account. The latter is triple tax-free, meaning your contributions, potential earnings and qualified withdrawals (including for long-term care costs) are tax-free.2 Consider making the maximum contribution of $6,900 annually for a couple, plus an extra $1,000 in catch-up money if you're at least age 55.

Prepare ahead

Beyond saving for and insuring against long-term care costs, there are other smaller steps that could turn into big savings down the road. If you plan to remain in your house, consider retrofitting it by making doors wider for walkers and wheelchairs. You can also build a ramp, install bath and toilet handrails and consider other measures that offer continued mobility. Also, consider one-level living options if you're looking to downsize from your current home.

The easier you make getting around in your house, the more likely you could receive less-expensive home care services if you end up dealing with limited mobility in the future.

Even if you're healthy now, it pays to prepare financially. Saving or insuring for some costs is better than being caught off guard. The odds that you'll become disabled in retirement aren't possible to quantify, so you can prepare for the worst and hope for the best. If you can't save for all the potential cost, save for some of it. The older you will appreciate the steps you take today.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
  • Print
1. Estimate based on a hypothetical couple retiring in 2018, 65 years old, with life expectancies that align with Society of Actuaries' RP-2014 Healthy Annuitant rates with Mortality Improvements Scale MP-2016. Actual expenses may be more or less depending on actual health status, area of residence, and longevity. Estimate is net of taxes. The Fidelity Retiree Health Care Costs Estimate assumes individuals do not have employer-provided retiree health care coverage, but do qualify for the federal government's insurance program, Original Medicare. The calculation takes into account cost-sharing provisions (such as deductibles and coinsurance) associated with Medicare Part A and Part B (inpatient and outpatient medical insurance). It also considers Medicare Part D (prescription drug coverage) premiums and out-of-pocket costs, as well as certain services excluded by Original Medicare. The estimate does not include other health-related expenses, such as over-the-counter medications, most dental services and long-term care.
2. With respect to federal taxation only. Contributions, investment earnings, and distributions may or may not be subject to state taxation.
The statements and opinions expressed in this article are those of the author. Neither Fidelity Investments nor your employer can guarantee the accuracy or completeness of any statements or data.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

836748.2.0
close
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
close

Your e-mail has been sent.

Here's more you might like:

Getting your affairs in order

It may not be a popular topic—but it is important to have a plan in place.
05/16/2018

Helping your (older) parents with their finances

Recognize the signs that help is needed and then be ready to step in.
05/16/2018

How to pay for long-term care

Learn more about the financial cost of providing a loved one with long-term care.
05/01/2018