For baby boomers approaching retirement, considering the potential impact that long-term care costs might have on your retirement plan is vital. Whether you are single or married, the unexpected need for you or your spouse to transfer to a nursing home or elder care facility can leave your retirement plan in shambles. If you have a retirement plan in place that has not taken long-term care preparation into account, you need to reconsider what will happen to you should you need nursing home care.
Exploding Costs of Long-Term Care
Even though specific numbers differ significantly based on factors such as location and individual facility, the average cost of long-term care has exploded in recent years. It isn’t uncommon for people to pay upwards of $90,000 a year for just a semi-private nursing home room. Private rooms in more exclusive facilities cost more than that.
When you combine the average cost of nursing home care with the probability that you might need it, you can quickly see how much of a threat these costs can be to your retirement plan. For the population of people age 65 and older, 70% of them will require at least a short-term stay in a long-term care facility such as an assisted-living home or nursing home. Of those who need long-term care, the vast majority, or 80%, will require such care for five years or less. Even if you assume a moderate $75,000 per year fee, a five-year stay in a nursing home will cost you $375,000.
One of the reasons many people don’t consider long-term care as a significant part of their retirement planning efforts is that they believe Medicare or Medicaid will pay for the expenses.
You can forget about Medicare covering the costs of long-term care expenses, and you can only use Medicaid if you meet stringent eligibility criteria. These criteria also differ from state to state, but essentially require you to get rid of or “spend down” almost all of your assets in order to qualify. What makes using Medicaid for long-term care even more difficult is the five-year look back requirements. Even if you develop a Medicaid plan that allows you to take advantage of the government program, your application will be viewed in light of the gifts you’ve given over the previous five years. If during that time your assets exceeded the application limit, your Medicaid application will be denied.
In other words, if you’re not poor and require long-term care, you can count on having to pay for it out of your own pocket.
So, if you haven’t already done so, you will need to speak to your estate planning attorney about planning for long-term care costs.