Serious Medical Crisis

Many Retirees Will Require Long Term Care, but Few Will Be Able to Afford It

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Whoever said, "I am in pretty good shape for the shape I am in," must have had a great long-term care insurance policy.

Long-term care is a category of healthcare provided to people who are physically or mentally unable to provide independent care for themselves. The term "long-term care" covers a wide range of medical and non-medical services, including:

  • Custodial help if you can not care for your own surroundings.
  • Help with the activities of daily living if you can not dress or bath yourself.
  • Occasional nursing care if you need assistance with medications or medical procedures.
  • Skilled nursing services.
  • Adult day-care.
  • Any services needed by individuals with a disabling or chronic condition that impairs their ability to meet their own needs.

Long term care can occur within your own home or in a nursing facility.

When creating your retirement plan, it is very important to understand that your chances of requiring long-term care are very high.

  • One out of every four persons aged 65 and above will require long-term care.
  • One out of every two persons aged 85 and over will require long-term care.

Other statistics show that 42 percent of Americans who are 65 today will enter a nursing home during their lifetime.

However, long-term care itself is not the problem. The issue is that the high costs of long-term care can spell financial ruin. Neither Medicare, Medigap nor private medical insurance covers long term care costs beyond a certain modest point. Most people will face a major healthcare crisis in retirement yet few people hedge against it. The money spent on long term care could significantly reduce or even wipe out your savings.

Right now, the average rate for a private room in a nursing home is $229 a day, or about $83,000 a year, according to a 2010 survey by Metropolitan Life Insurance Co. If the room rates reflect current annual increases in nursing-home costs, then by 2021, when today's 60-year-olds might need such care, the average rate will have risen to about $480 a day, or $175,200 annually. Most retirees do not even have this much money saved for the entirety of their retirement.

Home health care, the least expensive alternative to long-term care, costs on average more than $1,000 a month – also pricey.

Few people have amassed such large sums to cover their long term care needs. And the government is unlikely to pick up the tab – unless you are able to qualify for Medicaid benefits in a state that covers long term care.

Beware of the Cure

Long term care insurance, a disability plan that has been around since the mid-1980s, can cover the costs of long term care. However, finding a policy that actually delivers what you need when you need it is tricky. One study reviewed long term care plans in California and found that only three out of 47 offerings really provided adequate protection.

Issues to keep in mind when evaluating long term care insurance include:

  • Will the insurer be around when you need the care? You might not need to use the insurance until 10 or 20 years after you start the policy. If your insurer goes out of business, you could lose your coverage as well as the money you paid into it.
  • Is the coverage sufficient? Most often drugs, supplies and special services are not covered by long term care insurance policies. Some plans are only for nursing homes – not care in your own home. And, most problematic of all, many plans do not offer inflation protection – this is a must.
  • Will your particular ailment and needs be covered? Long term care insurance will not pay for your care unless you are unable to perform a specified number of what the industry calls "activities of daily living": bathing, dressing, eating, getting from a bed to a chair, remaining continent, using a toilet and walking. Far too often insurance companies will reject a claim from someone who legitimately needs help because they don't meet the company's strict criteria.

The real catch is that premiums for long-term care insurance are expensive and premiums for quality plans are near prohibitive. Currently, annual costs can vary from $400 a year for a 40-year-old male to more than $3,000 a year for individuals over 70. Learn more about Long Term Care Insurance

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Retirement Plan Risks

Take 5 minutes to find out if you have enough money, what are the risks to your retirement plan, how to minimize those risks and much more...