So how exactly should you prepare for long-term care? Let’s pretend that Susan is 60 years old, married, and getting ready to retire soon. She’s considering long-term care coverage but isn’t sure whether it’s a good idea or how to find the best option if it is.
Susan’s husband is older and already retired, the couple has around $600,000 in 401(k) assets, and they have enough money to live reasonably comfortably but not to cover a $111,325 annual bill. So, what should Susan do?
Is buying a long-term care policy before retirement a good idea?
Susan is smart to think about how she’ll cover long-term care costs, because without a plan, she’d probably have to pay out of pocket.
“Many people assume Medicare will cover long-term care expenses, but in reality, Medicare generally only covers short-term skilled nursing or rehabilitation after hospitalization,” Angie Welsh, founder and president of My Annuity Agents in Henderson, NV, told Moneywise.
So does that mean Susan should buy insurance? “Whether buying coverage makes sense usually depends on whether you have sufficient assets to absorb the cost if you do need long-term care,” Welsh said.
With just $600,000 saved, Susan couldn’t cover the costs out of retirement savings without withdrawing too much money too fast and putting her spouse at risk. While her husband could keep a shared home and certain assets, they’d have to spend down most of their wealth on care costs before Medicaid would kick in to pay for a nursing home if Susan needed one.
If Susan wants insurance to avoid this, she should act sooner rather than later. “If you want long-term care insurance, it’s smart to buy it earlier in life so that the costs are absorbed over time,” says Welsh. “Many people wait until they are already retired to consider a long-term care policy. By then, the costs are usually prohibitive.”
Premiums for a 60-year-old single female average $1,900 for a policy providing $165,000 in coverage with no inflation protection, or $2,600 for a combined yearly premium for a couple, according to the National Council on Aging. If Susan can afford this, purchasing it could provide peace of mind.
Alternatives to long-term care insurance
While spending $2,600 on insurance premiums is certainly preferable to covering a nursing home out of pocket, the premiums are still a big expense. And Welsh said many are reluctant to pay such high premiums when there’s a chance they may never need long-term care at all.
