Your portfolio can be depleted rapidly when a spouse or parent is in need of care if the potential cost is not accounted for in your retirement planning. The perception is that, “I am healthy right now and I won’t ever need care.” The reality is that 2/3 of 65 year olds will need some form of assistance. Think about this – it is estimated that over the next 20 years about 10,000 baby boomers will turn 65 each day (US News and World Report). Do you know someone who fits that category?
The impact of the cost of care includes:
- Family – physical effect of care giving on the spouse or children.
- Retirement Portfolio – potentially substantial depletion, $60,000+ per year and increasing with inflation.
- No one wants to be a burden on their family.
As a retirement planning specialist, I want to ensure everyone’s retirement plans are successful under all circumstances, not just when things go perfectly. Thanks to medical technology and healthy life styles, living a long life is becoming the norm and planning for it is a necessity. Is Your Retirement Plan Aligned With Your Life Expectancy? Women should especially be aware of these potential costs as they often find themselves trying to find and pay for care independently. In the United States, the female life expectancy of a 65 year old woman is 85.
The cost of care ranges and is dependent on what level of care is needed. The cost continues to rise and demand will be soaring in the future as baby boomers age. Take a look at the cost breakdown below for the state of Illinois from Genworth. As noted previously, the cost of care for the majority of the care options has risen over the past 5 years.
In addition to care services listed above, there may be additional costs – ongoing medical treatment, medical equipment, safety related expenses, prescription drugs, personal care supplies, etc. While it’s much more interesting to focus on building wealth, it is just as important to protect it.
Have you and/or your parents addressed this likely event?
If your retirement plan cannot accommodate these annual costs, it is time (it’s not too late for seniors) to do some major thinking about viable options.
What are some options to fund long- term care expenses?
Self-Insure. This is the defualt plan if you have not insured against this risk. This means spending down your life savings to pay for care.
Long-term Care Insurance. This is a good option for some, but the fact that many insurance carriers are drastically raising premiums for both new and old policies makes it much less attractive than it once was. Despite this, it is far better than the self-insure method for many people.
Health Savings Accounts (HSA). HSA’s are tax-deductible savings plans that allow a taxpayer to save pre-tax dollars for future healthcare expenses. These accounts are available to those who have a HSA qualified high-deductible health insurance plans. The contributions are not subject to federal income tax. Although you cannot contribute to a HSA after you sign up for Medicare, you can use the money after 65 to pay for a portion of your long term care expenses. Are You Missing Out? – 23,000 Reasons I Love My Health Savings Account (HSA)
Life Insurance. If you follow my blog entries, you will note that I am a proponent of using Life Insurance as a means for paying for long-term care expenses. Down the road, if you do need long-term care, you can take a monthly advance from the death benefit (tax-free) to pay for your care and any remainder would be passed on to your heirs income tax-free. Use Life Insurance for Long Term Care (if needed)
It’s not too late to plan. I have client’s in their 70’s taking action to protect their life savings. Don’t allow your retirement plan to be jeopardized if something happens to a spouse or parent. Is your retirement plan up to date? Can it accommodate the unexpected costs of care? It may be time to have a family meeting and make some major decisions.
100% of the people that plan for this, have greater peace of mind than those that don’t.