Are you ready for that $94,900 annual expense in retirement? | personal financing

(Christy Pepper)

When you’re saving money for retirement, it’s a good idea to think about how to cover the costs of housing, health care, food, travel, and other necessities and tolerance.

Unfortunately, there are huge expenses that you may encounter and you may easily forget – especially if you are young and healthy. The problem is that if you don’t take it into account and plan for it, you could drain your savings and end up ruining your partner’s finances or being unable to leave a legacy to your loved ones.

You do not want to find yourself in this difficult situation, so it is best to start preparing as soon as possible.

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These are huge expenses that don’t forget to plan for them

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One of the biggest expenses retirees are likely to face is often overlooked. These expenses are long-term care costs. According to a Genworth Cost of Care survey, the national average cost for a semi-private room in a nursing home is $94,900, while a private room costs $108,405 per year.

This obviously represents more money than most people can comfortably spend. In fact, even a few months of nursing care can make you quickly drain your retirement nest egg. And unfortunately, it’s an expense that many people end up having to contend with. According to LongTermCare.gov, a person age 65 has a near 70% chance of seeking long-term care service.

Unfortunately, the cost of care only goes up every year. If you’re far from retirement, nursing homes are very likely to have finished at a higher price by the time you need their services.

How to prepare for long-term care costs

The first step in preparing for large nursing home expenses is realizing that facing these costs is a possibility. Many people incorrectly assume that Medicare will cover their nursing services, but in reality, Medicare pays absolutely nothing for routine custodial care — the kind of care that sends most people to a nursing home.

If Medicare won’t pay for your nursing care, you have three primary options for covering costs:

  • Pay out of your pocket. This will require a huge nest egg, especially if you do not want to spend all your assets on care and leave nothing for your loved ones. This will certainly need to be taken into account in the retirement planning process.
  • Rely on long-term care insurance. Long-term care policies can be a good option, but it is best to purchase them at a younger age to avoid premiums becoming too expensive. You’ll also want to make sure you read the fine print and get a policy that really provides comprehensive coverage, as some insurance companies have daily exclusions or limits that can make them ineffective in protecting your money.
  • Get involved in Medicaid planning. This usually includes working with an estate planning attorney long before the time of the nursing home’s services are needed. You will take steps to protect your assets while you qualify for financially-tested Medicaid benefits. This approach can work because Medicaid pays for home hospice care, but it can be a lot of effort and expense.

It is up to you which of these three methods you decide to take. The important thing, however, is to be mindful of the high likelihood that you will need nursing care and to make a plan to carry it through without draining your egg.

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