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Long-Term Care: Don't Let the Cost Blow Up Your Retirement

Planning for a retirement that can last 20 or 30 years is an ambitious task. You need to develop reliable sources of retirement income that will cover your living expenses for the rest of your life, no matter how long you live, making sure you factor in future inflation, too.

If you've done a good job with this difficult task -- congratulations! But you're not done yet. There's one more step: You'll want to protect your good plans from getting blown up by potentially ruinous long-term care expenses.

Welcome to Week 11 of my series, 12 Weeks to Plan Your Retirement. It's time to review the steps you should take to protect your assets from being depleted by long-term care expenses, which can cost $50,000 or more every year. At that rate, it won't take long to deplete your retirement savings.

How real is this threat? If you want to learn about the odds, review my previous post, Long-Term Care: What Are the Real Risks? But if you want to make it real, ask several of your 50-something or 60-something friends if they've had to deal with long-term care for their parents. Chances are, you'll find at least one friend -- and probably more -- who's either had to provide care themselves or arrange for care and/or had to pay for it. Ask your friends about the financial burden and the strain that it puts on their lives. I bet you'll get an earful about careers on hold, much less time for family and outside interests, arguments with siblings, and sleepless nights filled with worry or anxiety about making the money last.

My wife and I have both had to deal with these issues. She did all three of the above tasks for her mother, and was eventually paying significant amounts for her mother's care when her mother's money ran out. My father also needed long-term care in his later years; my mother was the main caretaker, helped by her kids, grandkids, and eventually paid, in-home help. We both gladly pitched in to care for our parents -- it was simply the right thing to do. But our experience also motivated us to take care of things to prevent this from happening to us and to help eliminate the resulting strain on our children.

First, a dose of reality. Long-term care expenses are typically for custodial services: assistance with daily living activities when you're unable or too frail to prepare food, bathe or use the bathroom on your own, get dressed, or to follow medical directives. Long-term care expenses aren't medical expenses, so they aren't covered by Medicare or most medical insurance plans. The only exception is the care you receive when you're released from the hospital and admitted directly to a skilled nursing facility for rehabilitation following an injury or serious illness.

So what should you do to prepare for this serious threat? Your most important step is to adopt a strategy to pay for long-term care expenses. Don't hide your head in the sand and pretend it can't happen to you. If you do nothing, then, in effect, you're hoping your family or public assistance will take care of you if you ever need long-term care. But hope is not a good strategy!

There's not one magic bullet that will easily or cheaply address the threat of long-term care expenses. You'll want to do one or more of the following:

  • Be very serious about taking care of your health to minimize the odds that you'll eventually need long-term care.
  • Buy long-term care insurance. If the premiums are too high for your budget, consider buying "catastrophic" insurance or insurance that will pay for some, but not all, of the potential expenses. Some insurance is better than none.
  • Maintain a reserve of savings that's dedicated to long-term care and won't be used for generating retirement income.
  • Keep your home equity in reserve for the day when you might need long-term care. At that time, you might take out a reverse mortgage or home equity loan. Keep your home debt-free, and don't take a reverse mortgage to generate retirement income until you need it for long-term care.
  • Stay on good terms with your kids!
  • And make sure to include your spouse when developing your strategies, and tell your children and close relatives about your plans. This way, they know what you've planned and can carry out your wishes, should you be unable to tell them.
The above actions need to be considered when estimating how much retirement income you'll have, and if you buy long-term care insurance, you'll need to consider the premiums in your budget for living expenses.

One more thing: This is a very serious issue for women's retirement planning. When you visit a long-term care institution, you'll see that most residents are women. That's because they typically outlive their husbands, and then have nobody left to care for them. And often, the wife is the primary caretaker if the husband needs long-term care, and that can be quite a strain, sometimes pushing the wife into a facility soon after a husband passes away.

Planning for long-term care may not be the most inspiring part of your retirement planning, but it's simply something you can't afford to ignore. If you address this very real threat, you can have some peace of mind about the future, which lets you enjoy what you really want to do in your retirement.

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