The SOS Plan for Long-Term Care Costs

The good news is that we’re living longer than ever before. The bad news? We’re completely unprepared for it.

Nearly 70 percent of Americans will need some form of long-term care as they age, whether that means having someone help them out a few days a week or moving into an assisted living facility or nursing home.

The Need to Plan for Long-Term Care

These costs can add up quickly and are not typically covered by traditional health insurance or Medicare. That’s why every American’s retirement plan should also include a plan for long-term care. But few people in their 50s and 60s know how to get started.

My hope is to change that.

(MORE: How to Estimate Your Health Care Costs in Retirement)

A Different Kind of Bus Tour

This summer I hopped on my 1967 Greyhound bus and spread the word by taking it cross-country, partnering with the nonprofit 3in4 Association — named for the number of Americans over 65 who’ll require long-term care — and Emeritus Senior Living, America’s largest provider of assisted living and memory care. (As part of my tour, we launched a senior talent competition; the winner will get one year free at an Emeritus Senior Living community; 11 runners-up will receive a free week’s stay.)

Our mission was to raise awareness and recommend simple steps that boomers can take right now to make sure they’re financially prepared for long-term care costs before a crisis hits.

The key is planning in advance, since researching your options and working to address your future needs now can save thousands of dollars in the long run.

Using SOS to Plan Ahead

I recommend using the simple acronym “SOS” to guide you:

S is for Situation. It’s impossible to predict exactly the kind of care you may need. But you can consider your age, health and family history to determine potential risks and costs.

Ask yourself some key questions: Do you have a genetic disease in your family tree that would put you at high risk for long-term care? Are you in relatively good health, which can help keep your medical costs down? If not, can you take steps to improve your well-being with diet, vitamins or exercise? Does your home have safety features, like shower grab bars, to mitigate the chance of an accident?

Think about your spouse or partner, too, and encourage him or her to take similar steps.

O is for Options. Look into the costs of nursing homes, home health care, adult day care and assisted living facilities in your area (the 3in4NeedMore site has a state-by-state calculator with average figures).

You might be surprised to learn that the annual cost for a private room in a nursing home in the United States averages $87,235; a semi-private room is $78,110. Assisted living costs $41,724. An in-home health aide (without medical care) runs $20,800 and adult day services go for $18,200. As you can imagine, these expenses can quickly devour a nest egg.

The highest long-term care costs aren’t necessarily in the most expensive cities in the country. The going rate for a nursing home in Alaska (private or semi-private room), for example, is around $200,750 a year. People who live in the Rochester, Minn., area can expect to pay between $29 to $34 an hour for in-home health care, or roughly $60,000 for full-time care.

S is for Solutions. Take time now to research strategies that will help you pay for future expenses. Talk with a financial planner you trust to ensure your retirement plan takes potential health-related costs into account. Ask him or her about annuities, which can be used tax free to pay for those expenses.

Long-term care insurance might be one answer. The key is to educate yourself to find a policy that’s right for you. I recommend looking at four key factors:

• Benefits What costs will or won't be covered? Think about hospital visits, home care, in-home aides, nursing homes, assisted living facilities and adult day care. Some plans even pay for a geriatric care manager to come in, assess your situation and recommend your best options.
• Waiting period Does the policy activate the moment the need arrives, or is there a waiting period before benefits are paid out? Typically, the longer the waiting period, the less expensive the policy.
• Payments With some policies, you pay for costs out-of-pocket then get reimbursed. Other plans offer a lump-sum payment that you can use as you see fit.
• Inflation Does the amount of your policy’s benefits rise with the inflation rate?

A reverse mortgage might be worth considering if you’re a homeowner who is 62 or older. This financial product lets you stay in your own home and tap your equity tax-free, allowing you to use the cash for long-term care costs. But reverse mortgages come with fees and can be complicated. (Check out Next Avenue’s article, “What to Know Before Getting a Reverse Mortgage.”)

The federal government and some state governments offer useful advice to help you  devise a plan. I recommend The U.S. Department of Health and Human Services’ National Clearinghouse for Long-Term Care Information website. Some states, like Connecticut and Texas, also have websites to educate residents about their options; do an online search to see if your state offers that kind of help.

Planning ahead for long-term care will help you mitigate the financial and emotional impact of aging, so you can truly take full advantage of the years still to come.