Things You Must Remember About Long-Term Care While Planning for Retirement

Retirement is not all glorious but also prone to several uncertainties. While it should certainly entail living life with sufficient funds and good health, eventualities can always occur. Aging also brings along several health ailments, which, with time aggravate to require attentive and expensive care. These costs can cause a dent to retirement finances if the considerations for the same are not made in time. With strikingly increasing costs of healthcare in the country, it is very critical to create a robust retirement plan which features the role of long-term care.

Here are all the things you must remember about long-term care in your retirement planning:

Understand your needs and account for the costs

The most important factor to consider while planning for long-term care is your requirements. The type of long-term care needed and the corresponding costs are crucial determinants. Some options of long-term care include home or community care, retirement home or assisted living care, adult daycare, long-term facility, etc. The cost of each facility is different and can cause a massive dent in your savings, if not planned adequately. The fee is also impacted by the location of the facility and domicile. As per research, $341,840 is the sole cost of protecting someone’s dementia for a lifetime. The costs are continually on the rise. Hence, it is essential to plan for these eventualities beforehand.

Do not rely solely on Social Security benefits

One mistake that needs to be completely avoided while planning for retirement is to depend solely on Social Security benefits to support long-term care. As per the U.S. Census Bureau, the median income of a household is a mere $62,000 per annum. The average income is approximately $11,000 higher than that. However, instead of the required $2,861 Social Security benefit, the payout is barely $1,461 per month. Hence, relying on Social Security benefits can drastically blow retirement budgets. Even though delaying the withdrawals can increase the earnings by a considerable percentage (7-8% for each year postponed). Still, the funds will not be sufficient to meet demanding expenses in the long run.

Opt for a Health Savings Account (HSA)

An effective long-term care plan will require more expansive planning. It is advised to seek beyond general retirement savings to pay for the health care costs. One such great option is investing in a Health Savings Account (HSA). An HSA is a tax-advantaged savings account, which is available to people who are registered with a high-deductible health plan (HDHP). This medical fund offers tax benefits that include deductibles, tax-deferred growth, as well as tax-exempt withdrawals to provide for medical expenses. This is very beneficial for retirees up to the age of 50. This age bracket has an option to maximize the savings through catch-up and employer contributions. For an individual cover, the HSA contribution limit for 2020 is $3,550, whereas for a family it is $7,100.

Set up an asset protection trust

While planning on methods to cover expenses of lifetime care, it is also vital to ensure the continuous supply of funds. This is even more critical in cases, where a person has no control over the management of funds due to their health. In such circumstances, asset protection trusts prove to be very advantageous. An asset protection trust incorporates assets and keeps them secure from creditors. In this type, the ownership of the asset is given to a trustee, who is also responsible for managing and supplying funds. The trust can be used to pass on a legacy to heirs as well.

Buy long-term care insurance

An important aspect to consider while planning for retirement is to get secure long-term care insurance coverage (LTC). As per the U.S. Health and Human Services Department, 60 percent of people nearing the age of 65 are expected to use at least some form of long-term care in their lives. In such a scenario, ensuring that you have a comprehensive insurance cover is vital. The absence of one can be detrimental to the overall retirement plan and also erode all savings. Ideally, a person should buy the LTC cover at the age of 55. But given the changing lifestyle, deteriorating environmental conditions, and the increasing effect on human health, it is beneficial for you to opt for it at a younger age of 30. It also improves the eligibility and helps save on health costs. Alternatively, you can choose a hybrid policy, which will function as an LTC initially and the benefit of which will be paid to the nominee, if not used. Even though expensive, a hybrid policy provides more guarantee for the coverage and cash value.

Invest in longevity annuities

Also known as age-old annuities and longevity insurance, these are a very reliable form of financial assurance. While planning for long-term care costs in retirement, you can choose to invest in longevity annuities. These are typically a secure contract between the insurance company and the insured. In this, the insurance company guarantees a future income stream to the insured upon payment of premiums. The earnings recovered are based on life expectancy, age, premiums, and period. The best part is that these annuities are protected from market fluctuations and also protected against inflation. The amount is guaranteed to grow at a specified rate in advance to offset the rising costs later. Also, it is wiser to invest in a Qualified Longevity Annuities Contract (QLAC) as this is a tax-qualified longevity annuity.

Tap on home equity

While many debate the value of homeownership in the overall financial plan, it certainly is the most reliable asset in the long-run. Not only does the value of the land appreciate to allow you a stronger asset in the future, but it also has several other advantages. You can choose to sell your home and use the money to get admitted to a healthcare facility. Alternatively, you could get a reverse mortgage to support home-based care. It is also viable to shift to a more economical home while renting the property or selling the house to earn more to accommodate healthcare expenses.

Consider Medicaid and other government programs

The last consideration in the retirement planning for long-term care should be given to Medicaid and other government benefits. Relying on Medicaid is often a mistake that retirees commit. Even though Medicaid pays for general healthcare costs, the limitations and rules are too strict. The benefit is only payable to lower-income families that have limited resources. The funds are also restricted by usage. It offers very limited long-term care and offers few benefits. However, this option can be relied upon when all other resources have been completely tapped out. On the other hand, government programs such as VA (Veteran Affairs) benefits, if eligible, are a feasible option to cover costs.

To sum it up

Long-term care planning is expensive but extremely necessary. As per records, 4 out of every 5 retirees are completely unaware of the actual long-term health costs. With such startling figures, it is very important to be more attentive toward incorporating long-term care expenses in the retirement plan. You can seek help from professional Financial Advisors to maximize and optimize your long-term care in retirement.