Like everyone else, you would like to live a long, healthy and independent life. But the future is unknowable, so it’s a good idea to prepare for a variety of outcomes, including the possible need for long-term care.
Consider the following:
According to the US Department of Health and Human Services, a person turning 65 today has almost a 70% chance of eventually needing some type of long-term care service.
The median annual cost of a private room in a nursing home is around $ 105,000, and it’s nearly $ 55,000 for home help services, according to the Genworth insurance company.
Medicare can also cover very few of these costs. Therefore, it is a good idea to include the potential costs of long term care in your planning. While everyone’s situation is different, you may want to budget for two to three years of long-term care expenses.
But how can you prepare for these costs? Basically you have three options:
You could self-insure. If you want to cover the costs of long-term care out of pocket, you will need to consider a few questions: How will these potential costs affect your family? How might your other goals be affected, if not changed, by your decision to self-insure? Will you need to adjust your investment mix or designate certain investments to help you meet your cash flow goals? None of these questions should deter you from trying to self-finance long-term care, but they can help clarify the importance of this choice in your overall financial strategy.
You could transfer the risk to an insurance company. You can purchase long-term care insurance or a life insurance policy that offers long-term care benefits in addition to a death benefit. Before you get either type of policy, however, you’ll want to know exactly what the policies cover and when they come into effect. Also, be aware that the younger you are when you purchase a policy, the lower the premiums. On the flip side, if you buy a long term care insurance policy when you are young, you could end up paying premiums for many years to come for coverage you may never need. A financial advisor can help you assess all of your insurance options and recommend which one, if any, is right for you.
You can combine self-insurance with an insurance policy. You could plan to self-insure for long-term care for a limited time – perhaps a year of anticipated costs – and then purchase sufficient insurance for the additional expenses. This technique may involve some juggling on your part as to where to direct your money, but it can prove to be a viable compromise between self-insurance and putting all of your long-term care resources into one policy. assurance.
Which of these methods is right for you? There is no one “right” answer for everyone. But whichever route you choose, you’ll help protect yourself – and perhaps your adult children or other family members – from the potentially enormous costs of long-term care. And this protection can help you improve your prospects throughout your retirement.
Jennifer Barrett (AAMS) is a local financial advisor to Edward Jones.
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Edward Jones, its employees, and its financial advisors are not estate planners and cannot provide tax or legal advice. You should consult your estate planning lawyer or qualified tax advisor about your situation.