The odds are nearly even that you'll need long-term care (LTC) after age 65, at least for awhile. But, many people haven't planned for that possibility in their retirement plan. LTC care costs about $86,000 per year nationally, according to a Genworth study. Nearly one-half of those who need care need it for less than 1 year. However, a significant portion, 13% need the care for more than 5 years, according to the Department of Health & Human Services.
Most people think that all health care needs after age 65 will be covered by Medicare. That may be true with standard medical care, but it isn't true when it comes to LTC coverage. Medicare will only pay for such care under very limited cirumstances. First, you must have been in the hospital for at least 3 days prior to the LTC admission. Next, it must not be solely for custodial care. And, there's still a maximum of 100 days to the benefit. And only the first 20 days are covered in full. The remaining 80 days requires a daily co-payment of about $163.
Long-Term Care Insurance?
That means you must consider some alternative means to provide a source of payments for those large future expenses. There is long-term care insurance programs. However, the number of such insurers have been decreasing and prices have been rising. Also, such a plan may not be available at all, depending upon your age and health condition when you seek such insurance.
Another option is self-insuring. However, there are few who have the resources to self-insure for such a potentially large expense. Because 34% of people who need LTC need the care for either 2-5 years or more than 5 years, it makes sense to plan for several years of expenses. Let's say you plan for 4 years of expenses at $86,000 per year. That would be $344,000, not even considering future inflation. So, for most people, self-insuring is not a viable option.
Another option is Medi-Cal. Medi-Cal is a program administered jointly by the state and federal governments. It has asset limits to qualify. However, if you plan far enough in advance ("proactive planning"), you can protect your assets and qualfiy for Medi-Cal coverage.
However, if you don't plan ahead and you make transfers (such as gifting) less than 30 months in advance of the need for Medi-Cal and LTC, the transfers will count against you and you would remain ineligible.
But, if you plan far enough ahead, you could make transfers of your assets into a Medi-Cal Asset Protection Trust ("MAPT") - it won't count against you.
This is a vey complicated field. It has many moving parts.That's why you should work with an elder law attorney who specializes in Medi-Cal planning. This is what we do. Read more.
LTC expenses are part of the retirement planning process. Make sure you plan a way to handle your LTC expenses.