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Long-Term Care and Retirement

As life expectancies increase, so does the need for long-term care. It may surprise you to realize that approximately 70 percent of Americans now turning 65 will need some form of long-term care during retirement.

With nursing-home costs averaging more than $77,000 a year, depending on where you live, the costs of long-term care can take a big bite out of your retirement income, or deplete the assets you may want to leave to your beneficiaries. In fact, in many cases, mounting long-term care expenses can require your heirs to pay for your care. This is one of many potential risks you face managing your income in retirement.

Long-term care insurance

You may never need long-term care, but if you do, having a long-term care insurance policy can help protect your retirement assets from being drastically depleted over a short period of time.

Many long-term care policies pay most of the costs of expensive, assisted-living care, whether in nursing homes, hospices, or adult day-care facilities, and some policies will pay for in-home care as well. Coverage generally starts when you are no longer able to perform certain defined activities of daily living for yourself, such as eating, bathing, or dressing. 

Long-term care insurance is not for everyone. To decide whether it's right for you, keep the following parameters in mind:

If you have more than $1 to $2 million in assets and anticipate a short stay in a facility due to your personal and family health history, you may wish to pay these costs out of pocket. You may also decide against long-term care insurance if you have less than $50,000 in assets, as you may not need to divest yourself of much to qualify for Medicaid. 

A long-term care policy makes the most sense for those with retirement assets of between $50,000 and $2 million. Also realize that most people need long-term care due to the effects of disease (such as Alzheimer's or a stroke), not old age. When considering purchasing a policy, look at your family's health history and ask yourself how likely you'll be a candidate for long-term care. 

How Much Will It Cost?

Long-term care premiums can be hefty the older you are. A 65-year-old can expect to pay between $2,000 and $3,000 a year for a policy. By buying earlier, however, when you are in your 50s and in good health, you can pay a lot less per month.

The annual cost of long-term care insurance also depends on a number of other factors, including:

Duration of benefits: This is the length of time the policy will pay for the care required. The shorter your benefit period, the less expensive the premiums will be. With the average nursing home stay being two and a half years, opting for a three-to-four-year benefit period rather than a lifetime benefit may be a consideration depending on your specific situation.

Daily benefit: This is the dollar amount the policy will pay for the care required. If the actual daily care expense is greater than the daily benefit amount paid by the policy, you would owe the difference. The amount you choose (typically from $50 to $350 per day) will depend on what sort of care you want, where you'll receive it, and your ability to cover any excess costs. 

Elimination period: This is a waiting period before your policy begins paying benefits. It can range from 20 to 100 days, and you will have to pay out of pocket until it ends. The shorter your wait, the higher your premium.

Other issues that will affect the cost of your long-term care coverage include the range of care you choose, any pre-existing conditions, and provisions made for guaranteed renewability of your policy. Before choosing any provider or policy, you should carefully review your options and the policy's terms and conditions.

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