How to Hedge Your Retirement Against the Costs of Healthcare
In: Retirement Planning

I rarely take my lunch alone. And while back I had the pleasure of eating entirely too much food with a gentleman named Juan.

Let me give you the backstory here.

Juan turned 50 the day after Christmas. He and his wife, Raquel, have been married for 27 years and have three daughters – the youngest graduated California State Fullerton last year. Raquel works from home as a medical transcriptionist, while Juan is a master electrician.

They make a decent living for themselves, but their retirement savings were stalled when helping their daughters through college. While Juan and Raquel are now able to focus more aggressively on their retirement planning, there’s a problem.

“I’m worried about the cost of healthcare,” said Juan. “My dad, my granddad – both were in nursing homes, and I’m afraid it’s how things go on my side of the family. But it was hard on my parents financially.”

The proverbial elephant in the room.

I understood Juan’s fears. And to be frank about it, the future doesn’t look promising for healthcare costs.

In 2016, Money Magazine reported that healthcare costs are rising 5-7% annually – compare that with the cost-of-living adjustments provided by Social Security. That same article claimed: “Total retirement health care expenses for a 45-year-old couple planning to retire at age 65 will come to $592,275 in today’s dollars and $1.6 million in future dollars.”

Not very pleasant to think about, is it?

Those kinds of healthcare costs will far exceed a couple’s Social Security benefits, and millions of Americans could find any additional retirement savings devoured.

Since meeting Juan – and later Raquel – we were able to develop a retirement strategy that not only secures their financial future, but also protects their assets with a long-term care insurance policy.

Protect Retirement Assets with Long-term Care Insurance

save your retirement from healthcare costs

According to a report published by, the median cost of a semi-private room in one of California’s nursing homes is $7,450 a month.

That’s almost $90,000 a year! – enough to drain the retirement savings of most Americans. It happens. It happens far too often, in fact, and it often results in state Medicaid authorities seizing the family’s assets.

I don’t want to scare you from sleeping tonight, but it gets worse. Administration on Aging predicts that in 20 years that same semi-private room will cost Californians over $23,000 a month.

For many people, such as Juan, who fear potential healthcare problems in retirement, long-term care insurance can make a lot of sense.

But a study from Pennsylvania Healthcare Association estimates that 7 in 10 Americans turning 65 years of age will need, on average, 3 years of long-term care in their lifetimes. In other words, those terrifying costs for nursing home care are something we all need to think about.

And here’s the thing, folks… contrary to what many seem to believe, Medicare doesn’t have your back when it comes to long-term care. Not even close. Medicare only covers your first 100 days in a skilled nursing home. But it doesn’t cover everything, and you’ll have daily copays for 80 of those days. After Day 100, you’re on your own.

How Does Long-term Care Insurance Work?

I’ve written about long-term care insurance in the past, so I’ll only cover the basics here.

• Most policies will pay up to a few hundred dollars per day for long-term care expenses.
• Certain tax-qualified policies protect your assets from seizure by state Medicaid authorities.
• Some policies may compensate for healthcare inflation, offer a return of your premiums for unused coverage, or even provide “share care” –allowing married couples to enjoy a combined pool of benefits.

Juan chose a comprehensive policy, which is the kind most people buy today. One of the great advantages of a comprehensive long-term care policy is that it covers in-home care.

I mean, I don’t know about you, but I would much rather receive skilled nursing care in my own home.

But comprehensive policies cover a lot more, too – adult day service centers, hospice care, respite care, assisted living facilities, Alzheimer’s special care facilities, and, yes, nursing homes.

Buying Long-term Care Insurance

Okay. Let’s not get ahead of ourselves here. While long-term care insurance is a fantastic solution for millions of Americans, it may not be right for you.

In fact, you might not even qualify for long-term care insurance. Insurance companies will look at several criteria when reviewing your application.

The federal government has put together a list of common reasons a company might deny long-term care insurance applications:

• You’re already using long-term care services
• You’re already in need of long-term care services or need help with Activities of Daily Living (ADL)
• You have AIDS or AIDS-Related Complex (ARC)
• You have Alzheimer’s Disease, dementia, or cognitive dysfunction
• You have a progressive neurological condition (e.g. multiple sclerosis, Parkinson’s Disease)
• You experienced a stroke in the past year or two, or you have a history of strokes
• You have metastatic cancer

Obviously, if you develop any of those conditions after purchasing long-term care insurance, your policy would cover the long-term care you required.

Even if you qualify, there are lot of questions you need to ask before purchasing a policy. Like I said, long-term care insurance isn’t right for everyone.

1. Can you afford long-term care insurance? If you earn too little, you might qualify for Medi-Cal, which would cover your expenses 100%. On the other hand, if you’re independently wealthy, it might make better sense to self-insure. Otherwise – and this is really important – you need to make sure that you can afford the premiums not just today, but over your lifetime.
2. How much long-term care insurance should you buy? Unfortunately, some insurance providers strong-arm their clients into more coverage than they’re likely to need. But you don’t want to buy too little, either. You can usually decrease your amount of coverage later, though it’s usually difficult to increase it.
3. What kind of long-term care insurance policy do you need? Comprehensive policies are the standard, but deciding from all the available options can be overwhelming. Choosing a policy isn’t like buying a pair of socks – there aren’t any “one-size-fits-all” policies.

Get Help with Your Long-term Care Insurance Decision

Long-term care

If I can give you one final piece of advice here… don’t buy a long-term care insurance policy without consulting a trusted insurance professional.

Buying long-term care insurance is a lot different from buying auto insurance (obviously). If you don’t fully understand how the policies work, there’s a lot of potential for costly mistakes.

When consulting a professional, look for an independent provider. He or she will have the freedom to shop around and find you the best policy at the best price.

I would also recommend you choose a provider who specializes in retirement planning. You want to make sure a policy will fit with your financial goals.

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