savings for the retirement It can be daunting at best—and in a country where access to quality healthcare isn’t a guarantee for seniors, a 401(k) alone might not cut it.
An estimated 70% of Americans over 65 will need to get assisted living care, according to LongTermCare.gov. But with supported living costs averaging $54,00 a year, retirees may find it difficult to cover them without planning ahead. This is where long-term care insurance comes in.
Long-term care insurance provides a tax-deductible or cash-out reimbursement for costs associated with assisted living, including care facilities, skilled nursing care, and personal care assistance.
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“Long-term care insurance is designed to protect someone who eventually needs care in an assisted living facility or nursing home,” says Tom Kelly, employee benefits specialist and director at Buck Healthcare Advisory. “A lot of people think Medicare covers them, but that doesn’t really apply in our current ecosystem.”
The American Long-Term Care Insurance Association found that only 3% of the US population has long-term care insurance. Kelly stresses this as a bad retirement strategy and has worked with employers to add long-term coverage to their benefits offerings. He notes that 20 years ago, long-term care was a popular feature in the marketplace, but workers eventually felt like they weren’t getting their money’s worth—either because they didn’t actually need long-term care or because of the cost of care. itself was not comparable to the high annual premiums.
However, the majority of long-term care policies are now sold with life insurance, Kelly explains. If the member requires long-term care, the insurance company will provide coverage for the costs of care, leaving the maximum possible amount set aside for beneficiaries once the person dies.
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“Unlike the use-it-or-lose-it era, 85% of long-term care sales are through hybrid products,” says Kelly. “Either you will receive a death benefit, or you will use long-term care benefits.”
Thirteen states including California, Illinois, Michigan and New York are considering universal long-term care coverage. Washington has already adopted a public trust for long-term care, in which every employee living in the state is taxed at a rate of 58 cents for every $100 of income. But individuals who apply for the benefit can only receive a maximum total of $36,500 once they work and contribute to the general fund for up to 10 years.
Kelly points out that $36,500 is simply not enough, especially since the average man will need 2.6 years of care assistance and the average woman will need it for 3.5 years, with costs rising to more than $50,000 annually. Washington residents could choose not to be taxed under the state program, but had to purchase their own qualifying long-term care insurance policy by November 2021.
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“We’ve seen a lot of employees go to the open market, because they felt they could get better value,” Kelly says of the trends in Washington state. “We’ve had clients where 60% of their employees took the employer-sponsored plan, when we typically only see 5% to 10% enroll.”
However, a general safety net can at least help retirees cover costs, especially for those who feel they cannot afford the extra premiums. It’s important to note that for a single 55-year-old man, their long-term care premiums are about $2,220 a year, while single women likely get premiums of about $3,700 a year, according to fintech firm Smart Asset. Premiums can increase with age and changes in health.
On the bright side, not every worker necessarily needs to rush into buying a policy right now. The American Long-Term Care Insurance Association recommends Americans begin shopping for a policy when they turn 52 — which will hopefully be a more financially stable point in workers’ jobs.
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Kelly still advises employers to consider long-term care as a vital component of a holistic approach financial wellness eviction. Otherwise, he fears that employers and employees underestimate the cost of life for retirees.
Most employers have invested heavily in preparing for retirement, but without long-term care coverage, you will have to take advantage of retirement benefits. [savings]Kelly says. Long-term care is key to protecting your retirement assets and financial well-being. “