Protecting assets from nursing home costs should be one of the pillars of retirement planning. Sad to say, many Americans have a blind spot for long term care costs. They underestimate the costs thinking that their savings will be enough to cover it.
Will it be enough?
Unfortunately, no.
Based on the latest cost of care survey conducted by Genworth, the national median cost of a semi-private room in a nursing home is $85,775 while the private room costs $97,455. These are the rates of other long term care facilities:
This graph presents a clear picture that the cost of long term care can easily wipe out retirement savings. To those who still believe they wouldn’t need a nursing home in the future would probably change their mind once they find out about the study done by the U.S Department of Health and Human Services (HHS) that nearly 7 out of 10 of Americans 65 and above will receive any form of long term care that can last for an average of three years.
The cost can be overwhelming to us and to our loved ones if we cannot take the financial load anymore. So include nursing homes costs in your retirement planning when you still have time to prepare than to wait for a crisis to happen.
Options in Protecting Assets from Nursing Home Costs
Use your savings
If you have a significant amount of money in the bank, then you can use this to cover your nursing home expenses. You have the option to choose between a semi-private room or a private room in a nursing home with the former being the more affordable option. Self-insuring is the best option if you think you can realistically set aside more than enough money to cover your future care expenses.
Medicaid
Relying on Medicaid is another option but you need to meet the eligibility requirements first before you can receive benefits. States require you to be 65 years old and have an income and assets below a certain level.
Some Americans are forced to spend down their assets to become eligible. It might seem a wise decision but if you take a look at it closely, it is financially devastating particularly to those with surviving spouses, who will be left with limited resources.
Buy long term care insurance
Long term care insurance is a product that provides Americans the means to pay for nursing homes and other long term care facilities that they will need because of illness, injury or old age. This type of policy can protect your assets, savings and as well as your family members from the potentially devastating cost.
Download our free e-book Long Term Care Insurance and Retirement: 8 Essential Questions to learn more about how the policy works.
According to a recent survey by Harris Poll, only 25% out of the 2,065 adults have long term care insurance. Here are the reasons why Americans don’t have long term care insurance.
Here’s an infographic about the disadvantages of not having long term care insurance, which might help you make up your mind and make the soundest decision.
Life insurance
You can use life insurance to pay for long term care in two ways. First is through Accelerated Death Benefits (ADB). You can use the benefits in advance to cover terminal illnesses or life-threatening diseases or for long term care. Second is through life insurance with long term care rider, which allows you to use a part of your death benefit to pay for your long term care expenses.
Annuity
An annuity is another financial product that can protect your assets from expensive nursing home costs. It is designed to build funds and provide a steady flow of income in the future. You’re free to spend the money. Therefore, you can use it to pay for long term care.
Reverse Mortgage
Homeowners who are 62 years old and above can borrow against the equity of their home and use it to pay for long term care or any other purpose. However, you need to understand everything about this type of loan to avoid losing your home and to make the most of this financial product.
Long Term Care Planning is the Key
As you near retirement, you need to determine which of these options you can afford and will suit your future needs. Only you can determine the best financial product that will help you protect your savings and loved ones from the devastating cost of nursing homes. Start planning for long term care as early as possible so you will have enough time to explore your options and find the most fitting solution for you.