Lou Torres knew for years that his wife, Carol, had dementia and might need long-term care, so he gradually became her 24-hour caregiver while working to increase his savings rate.
“I didn’t know what was going to happen, but I knew it was going to cost money,” he said.
In 2020, when his wife could no longer care for him, Lu put Carol in a memory care center near their home in Waxhaw, North Carolina. It wasn’t cheap: By the time of her death last year, the couple had spent nearly $500,000 on her care.
It was a terribly difficult time for Lou—Carol didn’t recognize him for the last few years of his life—but financially, he was prepared.
Thanks to his savings and rising stock prices, Lou, now 73, has been able to pay for Carol’s care without making a significant dent in his $2.5 million savings.
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“Considering I didn’t have long-term care insurance, I was pleased with the outcome,” he said.
about 11% of Americans Seniors can purchase private long-term care insurance, according to KKF. Those with limited net worth and income can get basic long-term care paid for by Medicaid. The rest of us have to pray for our sanity and health or, like the Torres family, be prepared to shell out hundreds of thousands of dollars.
Lu’s financial advisor, Ann Reilly, advises couples who plan to pay for care themselves to set aside about $500,000 to cover the costs for both of them — memory care facilities are especially expensive, and Torres ended up spending that much just on caring for his wife.
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If you’re still considering how to finance long-term care, here are some things to keep in mind.
Medicare doesn’t pay for long-term care
Medicare only pays for up to 100 days at a skilled nursing center. Hospital stays require qualifying conditions, and Original Medicare members incur a copayment of $204 per day after the first 20. Medicare Advantage plan members may incur additional copayments, according to the government.
Some middle-income couples put assets into a trust in order to qualify for long-term care paid for by Medicaid, but they generally have to give up assets. At least five years aheadOr Medicaid officials may try to recoup the money to pay for care.
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Medicaid also covers the cost of basic long-term care in no-frills nursing homes, which may not be the level of care you want for yourself or a loved one, and there are often long wait times to get into nursing homes that accept Medicaid, says Melinda Cohill, a private Medicare adviser to retirees.
Insurance premiums are rising
When the long-term care insurance system was implemented The market in the 1970sInsurance companies misjudged the cost of long-term care, underpriced premiums and ended up suffering huge losses.
Insurance is now more expensive and more limited in scope: whereas earlier policies offered lifetime coverage, modern policies generally offer coverage for three to five years, with a cap on how much will be paid, after which you’ll have to pay out of pocket again.
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Rising premiums are making paying out of pocket more attractive. Richard Foh, a financial planner and certified financial analyst in Savannah, Georgia, crunched the numbers on the new long-term care insurance and said most people would be better off investing the money they would have spent on premiums to pay for long-term care out-of-pocket.
“Most of our clients are self-funded,” he says, “but the challenge with being self-funded is that it requires discipline over decades of potentially expensive times.”
Investment aggression varies by age
If you start saving in your early 50s and don’t expect long-term care costs to be a factor for many years, you should be aggressive in investing in stocks, says Michael Landsberg, a financial advisor in Punta Gorda, Fla. “If you’re looking 10 or 20 years into the future, you need to find assets that will last you that long,” he says. “You need to invest in stocks to at least keep up with the costs that you’re seeing in the long-term care world.”
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On the other hand, if you’re 75 years old, you might want to invest in ultra-safe securities and set aside some money for long-term care.
Don’t forget the tax implications
You may have enough money in your 401(k), but withdrawing a lump sum for long-term care will result in higher taxes and Medicare premiums. If possible, pay for long-term care expenses from after-tax funds, such as a brokerage account or tax-free Roth account, to avoid the tax liability.
Even if you have insurance, you may end up spending a lot of money.
The coverage usually only kicks in after you’ve made payments for three to six months, and many insurers are increasing their long-term care insurance premiums. Barons An article about a couple whose insurance premiums increased by 143%.
When Richard and Meredith Martin of Surf City, North Carolina, both of their parents needed long-term care, they bought long-term care insurance in 2008 when they were in their late 40s and it was cheaper. Because they bought it when they were young, they paid only about $2,000 a year in premiums for them. But instead of raising their premiums, insurers have drastically cut their long-term care coverage.
Richard, now 65 and a former Navy pilot, sees insurance as a supplement, and he and his wife plan to pay for most of the long-term costs from their savings. “We’ve been fortunate and have invested well,” Richard says.
Costs vary depending on location and other details
A rough guideline for long-term care costs is $250,000 per person, but this varies greatly by location, tending to be higher in urban areas and lower in rural areas. Nursing care cost survey It’s provided by Genworth and will give you an idea of the average cost in your area.
If you grew up in a home where dementia was prevalent, you’ll need to save even more: Memory care centers that specialize in Alzheimer’s patients are much more expensive.
Your home can be a giant piggy bank
Residential real estate prices have risen significantly since 2010, leaving many homeowners with hundreds of thousands of dollars in untapped equity. If one spouse needs long-term care, the other spouse can move to a smaller home or stay in the same home and take out a reverse mortgage to help cover the care costs.
Naturally, people in long-term care stop spending money on travel and eating out. Even healthy spouses tend to spend much less. This decrease in spending helps offset some of the costs of long-term care.
When it comes to long-term care, “clients are typically covering the cost out of their portfolios as other expenses start to decrease,” said Mark Fonville, a financial adviser in Richmond, Virginia, whose clients include the Martins.
Josh Trubow, a Boston-area financial advisor, agreed. “They’re not paying for food, they’re not buying clothes, they’re not taking trips. And if they sell their home, they still have all the equity in the home that they can use to cover their expenses.”
Contact Neil Templin at [email protected].
