After a lifetime of hard work, you’re ready to enjoy your golden years and live to the fullest – all without the burden of workplace drama or demanding deadlines. If everything goes according to plan, you will live the rest of your life happy and healthy.
However, a lifetime of experience has likely taught you that things don’t always go according to plan. Even if you’re healthy now, your circumstances may change — and you may find yourself needing long-term care at some point later in life.
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Do you need long-term care insurance?
According to the AARP, it is estimated that nearly 3 in 4 seniors will need at least some long-term care in old age. Of these, a quarter will spend at least $50,000 in petty cash over their lifetime. Some will pay much more – nursing homes can cost more than $150,000 a year.
Suffice it to say, these costs are significant. Unfortunately, Medicare does not cover it, which is why you may want to consider purchasing a long-term care insurance policy to help protect yourself from these expenses. Long-term care insurance is offered by companies such as Genworth Finance or Metlife It covers the cost of assisted living facilities, home care, home care, and adult day care.
However, long-term care insurance itself is very expensive. For example, ConsumerAffairs notes that for a 65-year-old man with certain health issues, annual premiums can exceed $2,100. For women of the same age, the premiums are higher, at $3,100 per year.
In exchange for these down payments, your default policy will cover roughly $400,000 in benefits at age 85. If you need long-term care right away, your policy will only cover just over $160,000 in benefits — barely enough for a year of home care to care for the elderly.
Do some math before buying
Keep in mind that your insurance policy will only remain active if you pay your premiums year after year. If you start paying at age 65 and don’t need long-term care until you’re 85, you’ll have paid your long-term care insurance premiums for two decades before using your policy.
At this point, you’ll be paying over $42,000 in premiums as a man, and over $62,000 if you’re a woman. If you’ve needed long-term care in a high-intensity environment for the last few years of your life, this investment may pay off.
However, it is more likely that you may not face any costs at all. Notably, the US Department of Health and Human Services estimates that 63% of retirees can expect to incur $0 in long-term care costs over their lifetime, either because they will not need long-term care at all or because they will. Access to alternative care provided by relatives or loved ones.
In light of this fact, it may be worth thinking about what would happen if you simply saved the amount you would have paid in installments. Assuming you save $2,100 a year and then invest it — achieving a 7% compound annual growth rate — you’ll end up with more than $86,000 after the same 20-year period between the ages of 65 and 85.
If you save $3,100 a year instead and manage to compound at the same rate, you’ll be left with more than $126,000, enough to cover a significant portion of your long-term care costs — if it materializes.
To believe or not to believe?
Long-term care is expensive. But so is long-term care insurance – so much so that it’s better for you to save and invest money than to spend it on premiums.
Long-term care insurance may still make sense if you expect to be among the small portion of Americans who will incur significant long-term care costs. But the vast majority of retirees who face out-of-pocket expenses that fall under the lifetime cost of premiums may be better served to pay for the care themselves.
By carefully considering your options and assessing your health, family circumstances, and financial situation, you will have a solid idea of how to arrange your health care needs in old age – long-term care insurance or not.
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