Planning for your long-term care needs is one of the most important things you can do for yourself and your family. It could help you avoid financial disasters and preserve your retirement savings.
Depending on where you live, long-term care costs can be substantial. That can rapidly eat into your retirement income.
Determine Your Needs
Long-term care is one of the most important financial considerations if you are planning for retirement. According to the Government Accountability Office, 70 percent of people age 65 or older will need long-term care at some point in their lives. The cost of these services can make a significant dent in retirement savings.
Fortunately, there are options for long-term care according to retirement information and services that may help you keep your costs down. These include savings or home equity buckets, Medicaid, and long-term care insurance.
But it is crucial to have a systematic approach when planning for long-term care. This will help you identify your needs, create a plan, and develop a budget.
To determine your needs for long-term care, start by talking with your doctor about your medical and family history and lifestyle. Ask them to provide a health assessment and suggest ways to improve your health.
Once you have a good grasp of your situation, work with your financial advisor to decide how best to fund your long-term care needs in the future. They can help you create a plan that includes your assets, income, and insurance coverage.
It would be best if you also worked with a tax professional to consider the potential tax advantages of purchasing LTC insurance. This can lower your tax burden and help you save for future expenses.
Create a Plan
Planning for long-term care costs is a must for anyone who expects to retire. Almost two-thirds of adults will need long-term care services in their later years, and the cost can significantly impact your retirement savings.
Step 1: Track down all your workplace retirement plans, like 401(k), 403(b), or SEP-IRA accounts, and non-workplace assets, like IRAs, home equity, and investments. Then create a dedicated long-term care “bucket” and separate it from your other retirement assets.
An automatic investment plan at your mutual fund firm or brokerage company can help ensure you save regularly for a long-term care fund. You can also add long-term care expenses to your retirement accumulation goals and recalibrate your savings target accordingly.
A Simplified Employee Pension (SEP) is another option for employers of all sizes. It allows employees to contribute to an IRA account through their employer and provides tax benefits for the business.
Generally, SEP plans must include a written agreement with a financial institution to serve as trustees of the SEP-IRAs. This must include the name of the employer, requirements for employee participation, and a definite allocation formula.
Create a Budget
A major concern for many people nearing retirement is long-term care. This could involve nursing home stays, home healthcare aides, assisted living facilities, adult day care, and Alzheimer’s-related services.
You should create a budget for care costs to help make the most of your retirement savings and avoid devastating long-term care expenses. You should allocate funds to a reserve for long-term care, including an estimated amount for out-of-pocket expenses and for inflation. You should also consider your personal goals, risk tolerance, the amount of savings needed, and when a care need might arise.
Often, you can mix and match different types of insurance products and your savings to come up with a customized plan for long-term care planning. For example, hybrid long-term care insurance combines long-term care and life insurance. Hybrid policies may cost more, but they are often a better fit for some people.
You should also consider whether you should rely on government resources to cover long-term care costs, such as Medicaid, which assists the poor. However, government programs often impose strict rules and restrictions on eligibility.
If you plan to rely on government programs, a good financial professional can guide you through the process. These professionals can assess your needs and help you determine how to pay for care and maximize your public benefits. They can also help you navigate Medicare, Social Security, your spouse’s income, and your family’s finances.
Consider Insurance
Before you decide whether or not you should buy long-term care insurance, you should consider your overall financial situation and retirement goals. It is also a good idea to ask your financial professional whether or not you should consider using assets or savings to cover long-term care expenses in the future.
For instance, some retirees may consider selling a second home or getting a reverse mortgage to pay for long-term care costs. Others may create a longevity fund to use as an additional source of funds.
Other options include setting up a health savings account (HSA), which allows you to contribute pretax funds and take tax-free withdrawals for qualified medical expenses. You can also write off the cost of long-term care in your taxes if you itemize deductions.
Alternatively, some purchase hybrid policies combining life and long-term care coverage. These can be bought in one lump sum or spread out over several years.
The premiums for these policies vary significantly and depend on several factors, including age, gender, health, and location. It is important to shop around and ensure that your chosen policy provides the coverage you want at a price that makes sense for your budget and lifestyle.
It is a good idea to start planning for your long-term care needs when you are young and healthy. This will give you a better chance of obtaining a low-cost, long-term care policy and avoiding potential financial hardships later on.
