Thanks to improvements in medical science and healthier lifestyles, Americans are living longer than ever before. Unfortunately, many of us will require long-term care at some point in our lives, and one in five of us will require long-term care for at least five years.
According to Genworth Financial, the median cost of long-term care nationwide ranged from $51,480 to $102,200 per year in 2019, depending on the type of care needed. (Care costs also vary widely based on where you live. To see the cost of care in your area, visit https://www.genworth.com/about-us/industry-expertise/cost-of-care.html.) The median cost of in-home care provided by a home health aide was more than $52,000 in 2019, while care in a nursing home can easily top $100,000 per year. Worse, experts predict that the cost of nursing home care will more than double over the next twenty years. Tragically, many families exhaust their life savings within a few years of a family member entering a nursing home.
Ready for some good news? Through proper planning, you can protect your hard-earned assets against the cost of long-term care. You can also receive assistance from Medicaid and other sources to cover the cost of your care, even if you or a loved one is already in a nursing home.
Long-term care planning options.
Long-term care insurance.
Many families consider purchasing long-term care insurance in advance to help pay for long-term care in the future. However, this type of insurance can be expensive. Typically, the younger you are when you apply for coverage, the cheaper your policy. Of course, the benefits of the lower premium must be factored against the amount of time a younger person will likely continue to pay premiums without requiring long-term care. Similarly, you can reduce the cost of your policy by choosing a longer waiting period. But a longer waiting period means you’ll need to pay the bills yourself before you receive any benefits. Most people interested in purchasing long-term care insurance should consider a 60-day or 90-day waiting period, which keeps premiums manageable but limits out-of-pocket costs. It is important to note that if you wait too long to apply for coverage, or until you have developed medical problems, you may not be able to qualify for a policy at all.
Reverse mortgages.
A reverse mortgage is a special type of home equity loan that allows you to receive cash against the value of your home without selling it. You can choose to receive a lump-sum payment, a monthly payment, or a line of credit. In the case of monthly payments, as long as you spend the payments you receive in the month that you receive them, the money is not taxable and does not count towards income or affect Social Security or Medicare benefits, nor does it count as income with respect to Medicaid eligibility. There are no restrictions on how you use the money and you can continue to live in the home while retaining title and ownership of it. The amount of the loan does not become due until the last borrower, usually the last remaining spouse, dies, sells, or permanently moves out of the home. If your heirs want to keep the home, they can repay the reverse mortgage. They can also keep the difference if the home’s sale price is greater than the reverse mortgage loan balance when they repay the loan.
Next time, we’ll look at life insurance, annuities, and obtaining assistance from Medicaid.
