Long-term care insurance: a great retirement investment

Retirement planning focuses on a portfolio that can sustain the cost of living once work-related income has ceased.  Many retirement portfolios are healthy enough to carry your standard of living well into retirement, but not large enough to protect against any huge costs – especially the rising cost of health care.

Rising costs of health care

Unfortunately for many seniors, the cost of pharmaceuticals to nursing homes is advancing much faster than the markets. As prices rise, the real value of portfolios to health care is much lower. Increasing health care costs can easily wipe out a whole portfolio as costs grow.

Long-term care insurance includes services like nursing homes and medical help that go past just a one time visit to a doctor. This kind of insurance might seem a little too much for a fledging family, but as life goes on and you reach retirement age, there is a plethora to consider in the way of health care. Most regular insurance policies and government programs do not cover the cost of healthcare for extended stays – meaning these costs come out of your pocket.

If you want to maintain your lifestyle and pocketbook well into retirement, you should seek long term insurance coverage. This insurance will provide you with the care you need when you reach old age, ranging from nursing homes and assisted living and even some in house visits.


The statistics of long term care

The math behind long-term insurance is overwhelming. Americans aged 65 and older have a 40% chance that they will enter a nursing-home some time in their life, while 55% people aged 85 and older are in a serious medical situation where they need nursing home care. With the odds stacked against you, its just a coin flip chance that you will need some form of long term care; whether or not you can afford it is another challenge. While many of these ailments can be moderated with in home care, most seniors will eventually find themselves in need of nursing home facilities to sustain their daily life.

Nursing home care is also one of the most expensive forms of health care. In 2006, the yearly cost of a private nursing home topped $75,000. This amounts to $205 per day, something most retirement portfolios cannot absorb. At a 4% return, a retirement portfolio would have to be greater than $2 Million just to pay for one person in a nursing home. You’re much better off insuring yourself now rather than paying the price later.

Even assisted living is expensive

If nursing homes aren’t exactly in the line up, the cost of assisted living might surprise you even more. In 2006, assisted living cost $35,000 per year, almost $100 per day. This kind of cost could only be covered by a million-dollar retirement portfolio, with no room for compounding. These costs are startling to say the least.


The worst part about long-term care is that most insurers do not cover it with their basic policy. If you ever find yourself in need of rehab in your senior years, you’ll incur the brunt of the cost. It is falsely believed that if the private insurance won’t cover healthcare, then government programs will. In fact, Medicare will only over 20 days of “medically necessary” care, with another 80 days that is subsidized by the program. The first 20 days are without any out of pocket expense, but you’ll find yourself forking over thousands of dollars when the 80 days of subsidized care kicks in.

Government programs won’t help

If you’ve reached the point of being permanently ill or unable to care for yourself, Medicare won’t foot the bill. Medigap or Medicare Advantage policies won’t cover the costs either. After 100 days of care, you’re completely on your own to pay. This is where the money really starts to add up. After a few years in long term care, the costs can easily destroy your retirement portfolio.

For anyone even with a modest retirement nest egg, Medicaid will be unable to help. For almost every state, a patient must have less than $2000 dollars in assets. That includes virtually everything you own, including retirement assets. Even the people with the best planning cannot afford medical assistance, largely due to this asset restriction. You would first have to sell your home before getting subsidized care. If at any time you moved out of an assisted care living facility, you would return to nothing. Chances are that you won’t be able to carry a job at the ripe age of 85.

Low premiums for long term care insurance


Annual premiums for long term care insurance are incredibly low. For a standard policy of four years of coverage with a $100 a day nursing home care, 20-day elimination period and 5% inflation protection policy, the average 40 year old will pay just over $500 per year. As you get older, this becomes more expensive, but certainly better than paying for costs out of pocket.

A 50 year old pays just $800 a year for the same coverage, a 65 year old about $1700, and a 79 year old about $6700. The huge jumps are due to risk of entering a nursing home that are much greater at 79 than 65 or 50 years of age.

At any age, entering a long term care insurance program is a great investment. Healthcare is one of the first costs that attacks your nest egg. Government programs and assistance are also unlikely to keep you in a long term facility; if you want to be protected later, the best investment is in a good long term policy. Even at the age of 79, $500 a month is little to spare for this kind of protection.

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