You probably know that healthcare is a big expense for retirees, largely because the cost of long-term care is very high. Research shows that 70% of seniors 65 and over will require some type of long-term care in their lifetime. This could be as little as a couple of visits a week from a home health aide to something as significant as several years in a nursing home. If you don’t plan ahead, these expenses could easily end up bankrupting you.

Motley Fool’s recent article entitled “The Shocking Cost of Long-Term Care — and How to Tackle It” says that another thing you probably know—or you should, anyway—is that, without a plan, you’re footing the bill for long-term care. It is not a service that is covered by Medicare. Medicare will only pay for medical-related services, like those needed to help you recover from an injury, illness, or procedure. Therefore, if you’re admitted to the hospital and then need a few weeks at a skilled nursing facility to finish your recuperation, Medicare will usually pay for this. However, if you need help getting dressed in the morning due to your advancing years, it’s not covered. You’ll have to pay for that care yourself.

Let’s look at the average annual cost in Iowa of what some common services will cost you, based on 2019 data from Genworth:

  • Assisted living facility: $48,933
  • Home health aide: $57,200
  • Shared nursing home room: $76,103
  • Private nursing home room: $82,537

You have a few choices for addressing the major expense of long-term care. One is that you can add to your retirement savings as much as possible. IRA contribution limits max out at $6,000 a year for workers under 50, and $7,000 a year for those 50 and over. With a 401(k), you get even more flexibility to fund your savings. Workers under 50 can deposit up to $19,500 annually, and if you’re 50 and over, you can go up to $26,000. The more money you add to your savings while you’re working, the more funds you’ll have available in case you need to pay for long-term care when you retire. (Note: following passage of the new SECURE Act in 2019, this option has become much less attractive)

Another option is to contribute to a health savings account, or HSA, and carry unused funds into retirement. You can then take withdrawals to pay for long-term care. Annual HSA contributions max out at $3,550 a year for those who save on their own behalf, or $7,100 for those saving on behalf of a family. Workers 55 and older get an additional $1,000 per year to contribute. HSA funds never expire, so these accounts are a very effective way to save for future healthcare costs, like long-term care, in a tax-efficient manner.

Finally, you can buy a long-term care insurance policy which will pay for a big part of your costs when you have large bills when adding to your income by working isn’t an option. Optimally, you should apply for long-term care insurance in your 50s, but many seniors get approved in their 60s. You can use funds from your HSA to pay for them.

With the help of an elder law attorney, you will be able to create a plan that effectively protects your assets and navigates the financial requirements of Medicaid.

Long-term care is an expense many seniors will have to address. If you want to avoid a situation where you’re forced into severe financial times because of it, save now to give you, and the people who care about you the most, less to worry about in the future.

Reference: Motley Fool (Jan. 29, 2020) “The Shocking Cost of Long-Term Care — and How to Tackle It”

Genworth(February 27 ,2020)