What Are Your Odds?
As you grow older, your chance of experiencing physical or mental decline due to a medical condition or simply aging increases, as does your chance of needing extra care. A person turning 65 today has almost a 70% chance of needing long-term care services and supports at some point during the rest of their life. It's also likely that you will need care for an extended amount of time. The average amount of time people require long-term care services is 3 years, and 20 percent of today's 65-year-olds will need long-term care for more than five years (U.S. Department of Health and Human Services, 2019).
Will the Government Help?
The fact is, many of us will need both medical and non-medical help as we age. While your medical treatments might be covered by traditional insurance, the long-term care that you will most likely need as you grow older simply isn't covered.
Tom and Sally thought, like many seniors, that their insurance would cover their health care expenses. Most seniors depend on Medicare for health care coverage, and it does cover most medical treatment and basic preventive care. But, Medicare does not cover “custodial care.” This is care that assists with activities of daily living (ADLs), like bathing, dressing, and using the bathroom.
Medicare only covers stays in a medical facility for an average of 22 days and up to 100 days if qualifying conditions are met. If you need to stay in a nursing home or other facility for an extended period, Medicare will not cover the cost. If you decide to move into an assisted living community because you can no longer take care of your home or your personal needs without some help, you will be responsible for the monthly rent and fees because Medicare does not cover those expenses either.
What Are the Costs?
Long-term care expenses add up fast, especially when you consider the fact that many people need care over months or years. Consider these average costs for care that many adults seek as they age:
• A semi-private room in a nursing home costs $225 per day, or $6,884 per month
• A private room in a nursing home costs $253 per day, or $7,698 per month
• An assisted living facility costs $119 per day, or $3,628 per month
• At-home healthcare aide or homemaker services cost more than $20 per hour
• One day at an adult day care center costs $68
Source: U.S. Department of Health and Human Services, 2019.
The Single Question That Tom Urges Everyone to Ask Themselves.
At the very beginning of each of Tom's speaking sessions, he asks everyone in the audience to answer one simple question. Can you afford to take the hit?
Your spouse or children will end up footing the bill, and they will need to sell assets and drain your savings and investments to cover the expense. Decide which assets you would sell first.
You could take distributions from an employer-sponsored retirement account, such as a 401(k), 403(b), or pension plan. This saves you from having to spend down other savings and investments. But, using your retirement savings for long-term care puts your retirement years in jeopardy. What happens if you require long-term care for several years, then recover? If you deplete your retirement savings, you may not have enough left to pay your living expenses. What if you require long-term care, but your spouse remains healthy and independent? Your spouse's comfortable retirement might no longer be possible because of retirement account withdrawals to cover your uninsured medical expenses.
Long-term care expenses are extremely hard to plan ahead for. You don't know when you will require care, or for how long, how much it will cost in total, or how many years of living expenses you need to plan for if you require long-term care then recover. This makes saving for uncovered medical expenses nearly impossible.
It only takes a short time for long-term care expenses to deplete a lifetime of savings. Your careful investments, a comfortable retirement for your spouse, and the legacy you plan to leave your children are all at risk if you require long-term care. Can you afford to take that hit?
For many the simple answer is "No, I can't afford to take the hit." For others the answer is, "Yes, I may be able to absorb the hit, but I don't want to."
