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Underestimating the Cost of Assisted Living

When planning for retirement, many families and their loved ones underestimate the cost of long-term care. According to the 2016 annual Genworth Cost of Care Survey, Americans underestimate the cost of long-term care by 50 percent, while four out of five underestimate the cost of home health care. Lack of knowledge, paired with a slow increase in prices for long-term-care, leave seniors financially in trouble for their future beyond retirement. Here are some tips on what to do to get started on saving for the future:

  1. Explore Your Options – There are several options when it comes to choosing the right home care, including assisted living, memory care homes, nursing homes, residential care homes, and senior living. Each option comes with different amenities, healthcare services, and most importantly, cost. Depending on what type of home you or your loved one decide upon, the cost of care and the amount you need to save up varies. Below we’ve outlined the average monthly state cost of each facility:
    • Assisted Living: Often the most popular option, assisted living offers seniors a balance between independence and having access to the care they need. Average monthly state cost: $3,553 (without level of care), compared to a state median cost of $3,815 for private, one bedroom accommodations.
    • Memory Care: These homes are designed to care for those who have been diagnosed with memory disorders such as Alzheimer’s disease, dementia and other types of memory problems. The average monthly state cost is $4,995.
    • Nursing Homes: This is the highest level of care your loved one can receive outside of a hospital. The average monthly cost is $4,354 for a shared room, compared to a state median cost of $4,802.
    • Senior Living Homes: Also known as retirement communities, these have an average monthly state cost of $2,225.
  2. Determine How to Pay – When considering how to pay for long term care, there are several factors that come into play such as type of care facility, income and assets, health status, family medical history, region in which you are receiving care, and whether or not family is able to pitch in financially. Regardless of these factors, you or your loved one must determine the method of payment for care. Here are some of the most common ways to pay:
    • Out of Pocket – This option is for the financially fortunate who are able to pay their entire long-term care out of pocket. It also may be for individuals who have saved up enough money early enough and diligently to pay for long-term care. This option is often not necessarily the norm.
    • In-home care – Many people want to stay in their family home for as long as they can before moving into assisted living by gradually increasing their levels of desired care through private providers. These include personal assistants, shoppers, drivers for doctor visits, cooks, gardeners, house cleaners, etc. None of this is covered by any form of private or government insurance, so all costs must come from personal funds.
    • Medicare – Many people think that Medicare will automatically pay for the cost of long-term care, however that is not the case. Medicare does not pay for any form of assisted living, meaning that clients need to rely on other sources, including spending down their assets. Assets include everything you have, from savings to retirement accounts to stocks and bonds. Fortunately, the personal home is excluded from what counts as an asset. Income up to $32,000 is allowed without penalty, but Medicare benefits are withheld by 50% for any income over the limit. Check with a retirement planning attorney for specific rules, which may vary from state to state. This could be a critical step in retirement planning to prevent serious financial mistakes.
    • Medicaid – This option is for those who truly cannot afford any kind of care. To qualify, clients must spend down their assets to a level not to exceed $2,000 (yes, not a typo, $2,000) and may not earn more than $16,000 annually. Assets include savings, retirement accounts, brokerage accounts, etc., but exclude the personal home. As with Medicare, there are highly detailed and state-specific rules to follow in order to qualify, plus sometimes long waiting periods. Planning well ahead is essential.
    • Reverse Mortgage – Essentially siphons off your home’s equity to increase your monthly income, but this may negatively affect your Medicare benefits and Medicaid eligibility. It moves your home out of its protected position into the realm of government benefits calculations, possibly affecting your heirs and yourself when the equity runs out or in other ways. Again, specific rules apply.
    • Long-Term Care Insurance – For those who signed up early, or were fortunate enough to be offered the option through their employer, this type of insurance can defray a large part of retirement costs, depending on the level of care chosen. The ideal time to sign up is when clients are in their 40’s, which means very low premiums and caps on every-five-year premium increases. While there are no age limits, anyone over 60 will find it difficult to qualify and face very high if not prohibitive premiums. Half the applicants in their 70’s won’t qualify at all or face very high premiums costing more than other forms of care.
  3. Start Early – According to the U.S. Department of Health & Human Services, at least 70% of Americans over age 65 will need some kind of long-term care, and 20% will need it for more than five years. It is never too early to start saving for retirement and long-term care. Regardless of the type of care your loved one will need, whether a nursing home or in-home care, it is a good idea to prepare ahead of time in order to avoid financial and emotional stress.

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