long term care planning

We can all celebrate an increasing life expectancy as we look forward to our golden years. Over the past century, medical advancements and healthier lifestyles have led to a dramatic increase in the life expectancy of Americans. In 1920, the average life expectancy was only 53.6 for men and 54.6 for women1. According to the CDC, our US life expectancies are now 76.2 for men and 81.1 for women. And for those that have reached age 65, life expectancies increase to 84.0 for men and 86.5 years for women.2

A longer life is a blessing, and it also means a higher likelihood of needing long-term care: According to government estimates, someone turning 65 today has almost a 70% chance of needing long-term care later in life. And 20% will need it for longer than five years.3

You Can’t Necessarily Rely on Medicare or Medicaid

Under most circumstances, Medicare only covers short-term stays in skilled nursing facilities. If qualifications are met, Medicare will pay the full cost for the first 20 days, and a portion of the cost for the following 80 days. After 100 days, you are responsible for covering costs. Even if you purchase a Medicare supplemental insurance policy, you’ll need to find another way to cover long-term care costs.

While Medicaid will cover a large portion of long-term care costs, there are strict functional and financial requirements. And while there are legal planning techniques people use to qualify for Medicaid without spending all of their assets, more of these opportunities are being taken away as social welfare programs become more fiscally challenged.

The High Cost

Long-Term Care (LTC) refers to a range of services, such as help with dressing yourself, eating, mobility, and housekeep. LTC services are generally provided by an assisted-living facility, at home with the aid of a caregiver, or at a nursing home. Consider that the median annual cost of an assisted living facility is $45,000 and the median annual cost for a private room in a nursing home is over $97,000.4

 Paying with Retirement Accounts has Downsides

If you’re thinking of paying for long-term care out of a pre-tax retirement account such as a 401k or IRA, consider the potential tax burden. It could mean pushing yourself into higher tax brackets and potentially draining your retirement accounts faster than you had planned. And, keep in mind that no one knows what tax rates will be in 20-30 years.

Every financial plan looks a little different and tailoring your plan to help mitigate the potential costs of long-term care is an important part of your retirement plan. There are several options on how to prepare for and pay for long-term care needs such as self-funding, long-term care insurance, annuities, and more. Brogan Financial can help you choose the best options for your unique financial situation. Call us today for a complimentary review or to meet with one of our staff members.

1 https://u.demog.berkeley.edu/~andrew/1918/figure2.html
2 https://www.ssa.gov/oact/population/longevity.html
3 https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html
4 https://www.morningstar.com/articles/879494/75-must-know-statistics-about-long-term-care-2018-edition