After a life of hard work, you are ready to enjoy your golden years and live life to the fullest, all without the burden of workplace drama or demanding deadlines. If all goes to plan, you will live the rest of your life happy and healthy.
However, a lifetime of experience has probably taught you that things don’t always go according to plan. Even if you are in good health now, your circumstances may change and you may find yourself in need of long-term care later in life.
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Do you need long-term care insurance?
According to the AARP, it is estimated that nearly 3 out of 4 seniors will require at least long-term care in old age. Of these, a quarter will spend at least $ 50,000 on out-of-pocket expenses over the course of their lifetime. Some will pay a lot more – nursing homes can cost over $ 150,000 a year.
Suffice it to say that these costs are substantial. Unfortunately, they’re not covered by Medicare, which is why you might want to consider purchasing a long-term care insurance policy to insulate yourself from these expenses. Long-term care insurance is offered by companies such as Financial Genworth or MetLife and covers the costs of assisted living facilities, home care, home care and day care for adults.
However, long-term care insurance is also quite expensive. For example, ConsumerAffairs notes that for a 65-year-old man with some health problems, annual premiums can exceed $ 2,100. For women of the same age, the premiums are even higher, reaching $ 3,100 per year.
In exchange for these upfront payments, your hypothetical policy would cover approximately $ 400,000 in benefits at the age of 85. If you were in need of long-term care immediately, your policy would only cover a little over $ 160,000 in benefits, just enough for a one year of home care.
Do some math before you buy
Please note that your insurance policy will only remain active if you pay premiums year after year. If you start paying at the age of 65 and do not need long-term care until the age of 85, you will have paid long-term care insurance premiums for two decades before using yours. policy.
By now, you will have paid over $ 42,000 in rewards as a man and over $ 62,000 if you are a woman. If you need long-term care in a high-intensity environment for the last few years of your life, that investment could pay off.
However, it is more likely that you will not incur any costs. Specifically, the U.S. Department of Health and Human Services estimates that 63% of retirees should incur $ 0 in long-term care costs over the course of their lives, either because they won’t need long-term care or because they will have access to replacement care provided by relatives or loved ones.
In light of this fact, it may be worth considering what would happen if you simply save the amount you would otherwise have paid in premiums. Assuming you save $ 2,100 a year and then invest it, hitting a compound annual growth rate of 7%, you’ll end up with over $ 86,000 after the same 20-year period between the ages of 65 and 85.
On the other hand, if you save $ 3,100 a year and manage to accumulate at the same rate, you will have more than $ 126,000 left over, enough to cover a substantial portion of your long-term care costs if they ever materialize.
To insure or not to insure?
Long-term care is expensive. But long-term care insurance is too, to the point where you might be better off saving and investing the money than spending it on insurance premiums.
Long-term care insurance may still make sense if you plan to be among the small fraction of Americans who will incur substantial long-term care costs. But the vast majority of retirees who face out-of-pocket expenses that are part of the lifetime cost of insurance premiums may be better served by paying for care themselves.
By carefully considering your options and evaluating your health, family circumstances and financial situation, you will have a solid idea of how to organize your health care needs in old age – long-term care insurance or not.
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Silly co-worker Ryan Sze has no position in any of the titles mentioned. The Motley Fool has no position in any of the titles mentioned. The Motley Fool has a disclosure policy.