Does Your Retirement Personal Budget Include Long-Term Care

Does Your Retirement Personal Budget Include Long-Term Care

No one likes to think about needing long term care, and if you're young and healthy it's hard to imagine needing help with basic activities of daily living. However, at least 70% of people over 65 will need long term care at some point. Moreover, long term care is not just a problem for older adults. Forty percent of the people currently receiving long term care are under age 65.

When planning your personal budget to include money for retirement, it's important to consider long term care costs as well, because they can be extraordinarily high. Unfortunately, many people overlook planning for long term care, perhaps because old age seems far off, or perhaps as a gamble that it won't be necessary. However, setting aside money for long term care should be part of your personal budget.

Think Medicare Has Your Back? Think Again

Your employer-based health insurance doesn't cover daily extended care. And while Medicare will cover a brief nursing home stay or a short period of at-home care, it only does so under very specific circumstances. Therefore you would be personally responsible for the expenses of extended nursing home stays and ongoing care needs. A semi-private room in a nursing home costs an average of $205 per day, or $6326 per month, according to the Department of Health and Human Services.

Depending on which state you live in, you may be able to find relief in a provision of the Affordable Care Act called the Balancing Incentive Payments Program. This program is designed to help keep people in their homes and out of nursing facilities when possible. States participating in the program are Arkansas, Connecticut, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Mississippi, Missouri, New Jersey, New York, Ohio, and Texas.

Don't Wait

The longer you wait to plan for long term care, the more costly it will be. Wait too long and long term care insurance could be impossible to qualify for. Forty-five percent of long term care insurance applicants age 70 to 79, and 66% of those over 79 are declined by long term care insurance companies. Purchasing long term care insurance should be done in your 40s, but planning for long term care through your personal budget and investments should begin earlier.

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Your Personal Budget Can Free Funds for Long Term Care

A comprehensive personal budget can help you free up money that can be used toward long term care, whether you buy a long term care insurance policy or use a Health Savings Account toward long term care. By refinancing a high-rate mortgage, hanging onto your older car for another year or two, and paying down credit card debt, for example, you will have more money to put toward long term care planning.

Long Term Care Insurance

To get the best long term care policy, consider working with an insurance agent who is an expert in long term care policies. Many life insurance agents don't have the expertise necessary to help you find the best long term care insurance. If you are in your 40s, 50s, or 60s, a long term care insurance specialist can usually tailor a plan to your needs. It's important to choose a policy that is "guaranteed renewable" so the insurer can't cancel your policy (though they can raise premiums).

Using Health Savings Accounts for Long Term Care

First authorized by Congress in 2003, health savings accounts (HSAs) are used in conjunction with high deductible health plans. These accounts are funded with pre-tax dollars and are not subject to tax at withdrawal. An HSA can be used to pay for long term care policy premiums as well as other types of coverage, and HSA money can pay for qualified long term care services. The maximum annual contribution to an HSA is $3,250 for individuals or $6,450 for families, and unlike flexible spending accounts, HSA money can carry over from year to year.

Long term care is an expense nodiv wants to plan for. Needing long term care is something most people don't like to contemplate, and there's always the chance that it will never be needed. However, most people do need long term care at some point during their lifetime, and the sooner they set aside money for it, the better off they'll be if it's ever required. If your personal budget doesn't have money set aside for long term care, perhaps it's time to modify your budget. Investing in a more comfortable future is well worth trimming the fat from your personal budget for.

Next step: Get budgeting software from Mint to help you set aside money for long term care. Click to get started.