For many people, healthcare costs in retirement can be a bigger worry than what the stock market is doing on any given day. And that makes sense. Markets will rise and fall, but your future health needs are much harder to anticipate. Long-term care, in particular, can feel like one of those big unknowns nobody really wants to think about, let alone discuss around the dinner table. The good news is that you don’t need to predict exactly what will happen. You simply need to understand the possibilities, prepare for the costs you can anticipate, and build enough flexibility into your plan to handle the things you can’t.
Two types of healthcare costs.
Routine healthcare is the ongoing expense that comes with taking care of your health: insurance premiums, prescriptions, doctor visits, dental care, and vision care. While the exact amount can change from year to year, these expenses are generally easier to anticipate and build into a retirement budget.
Long-term care generally involves help with everyday activities such as bathing, dressing, eating, or preparing meals. Care may be provided in your home, in an assisted living community, or in a nursing facility. The cost can be harder to predict and can snowball quickly. Long-term care is often unaccounted for when people think about their projected financial needs in retirement.
What Medicare does and doesn’t cover.
One of the biggest misconceptions about retirement healthcare is that Medicare will cover what’s needed. Medicare can cover a significant portion of your medical care, but it isn’t designed to pay for ongoing long-term custodial care. Medicare coverage for skilled nursing facility care is generally limited and subject to specific eligibility requirements. It isn’t the same thing as paying indefinitely for long-term custodial care. This distinction is important because it means long-term care deserves its own place in your retirement plan. Simply including it in your general healthcare budget is likely not enough.
What long-term care can cost.
The cost of care varies considerably based on where you live, the level of assistance you need, and where that care is provided. Receiving help at home, moving into assisted living, and needing nursing-home care can all come with very different costs. What matters most for planning purposes is recognizing that long-term care can become a substantial expense, particularly when care is needed for an extended period. You don’t necessarily need enough money set aside to cover every possible scenario. But having a plan, even an imperfect one, puts you in a much stronger position than simply hoping the expense never comes up.
Ways to plan for long-term care costs.
Self-funding is setting aside savings specifically for future care. This strategy can offer flexibility, but it also means accepting the risk that your care needs could ultimately cost more than you’ve reserved.
Long-term care insurance policies are specifically designed to help pay for qualifying long-term care expenses, although premiums, benefits, waiting periods, and coverage limits can vary significantly.
Hybrid life insurance and long-term care policies combine life insurance benefits with provisions that may help pay for qualifying long-term care.
Health Savings Accounts (HSAs) may also play a role in your overall healthcare strategy. HSA funds can be used to pay for qualified medical expenses tax-free.
Medicaid may cover certain long-term care expenses for people who meet applicable eligibility requirements. Because those requirements can vary by state and depend on factors including income and assets, Medicaid planning is a separate consideration.
Build flexibility into the plan.
Nobody knows exactly what their healthcare needs will look like 10, 20, or 30 years from now. That’s why a good retirement plan needs flexibility built into it. Maybe that means creating a dedicated reserve for future healthcare and long-term care expenses. Maybe it means reviewing your Medicare and insurance choices regularly. Or perhaps it means periodically revisiting whether self-funding, insurance, or a combination of strategies still makes sense for you.
Start by taking inventory.
What healthcare coverage do you already have? What resources have you set aside for future medical expenses? If you or your spouse eventually needed help with everyday activities for an extended period, where would that money come from? The goal is to make sure an unexpected care need doesn’t automatically become an unexpected financial crisis. If you would like help determining how healthcare and long-term care fit into your broader retirement plan, don’t hesitate to reach out.
Frequently asked questions.
Does my life insurance policy cover long-term care?
Standard life insurance typically doesn’t include long-term care coverage unless the policy has a long-term care or chronic illness rider. Review your policy or contact your provider to see exactly what your coverage includes.
Is long-term care insurance worth considering if I’m healthy?
It can be worth considering since your age and health may affect both eligibility and pricing. Whether it makes sense for you depends on your finances, available assets, and how much of the potential cost you’re comfortable covering yourself.
What happens if I run out of money for long-term care?
Medicaid may help cover qualified long-term care if you meet applicable financial and eligibility requirements. Because the rules vary by state, it’s important to understand the requirements where you live.
Should my spouse and I plan for long-term care together or separately?
It usually makes sense to look at the financial impact together, since one spouse’s care needs can affect the entire household. You’ll also want to consider each person’s individual health, coverage, and care preferences.
Disclaimer: The information above is for general educational purposes only and should not be considered financial, tax, or legal advice. Always consult with a qualified professional regarding your specific situation. You should consult with your CPA and/or attorney before implementing any estate planning, gifting, or tax-related strategy.