by Gary Foreman

Most people are surprised by the high costs of long term care and often fail to plan for them accurately. Here is what you need to know to protect your retirement savings.

Could the cost of long term medical care deplete your retirement savings? That’s the fear of many retirees. And, given that there’s a better than 50/50 chance that you’ll need long term care at some point, it’s a valid concern.

We wanted to learn more about long term care and how to pay for it. To help us understand the issue, we contacted Angela Dorsey, CFP®, MBA and a Principal of Dorsey Wealth Management. Ms. Dorsey is a fee-only financial planner in Torrance, California specializing in women and their families.

Q: Most people aren’t aware of the potential costs of long term care and are surprised by how much they could spend. How big a bill should retirees prepare for when they’re doing retirement financial planning?

Ms. Dorsey: Costs can vary greatly depending on where you live and the type of care you need. However, the average 65-year-old couple can expect to pay a minimum of $315,000 out of pocket in healthcare costs during retirement.

Q: It’s also a common assumption that “others will need long term care, but I won’t.” Do the stats support or refute that assumption?

Ms. Dorsey: Many people find it easy to ignore the need for long term care because of more immediate issues they are facing, such as purchasing a home, saving for retirement, and putting kids through college. However, according to the U.S. Department of Health and Human Services, 70% of Americans who reach age 65 will eventually need long term care.

Q: Could you explain “self-funding” and when that’s a sensible answer for retirees planning for potential long term care expenses?

Ms. Dorsey: Self-funding means you feel confident you can pay for long term expenses yourself if need be. The self-funders don’t buy long term care insurance. These individuals have plenty of money or other assets to pay for their LTC expenses. They have made retirement projections and have enough money to fund their retirement without running out of money so they feel confident that they can pay for health care expenses without jeopardizing their retirement for both spouses if married. Self-funding can be a sound strategy if an individual or couple feels they have the assets to fund long term care without running out of money in retirement.

Q: Some people choose to supplement a self-funding long term care plan. What does that look like?

Ms. Dorsey: If you want to self-fund, but you don’t want to bare the entire burden, you can purchase a long term care policy to help. You may be willing to pay for the early costs of LTC insurance from assets and family assistance, but you want help if care is needed for a long time. In this situation, you may want to consider an LTC insurance policy with a long elimination period of, for example, 365 days. This way, assets and family assistance can help through the first year, then after that, the long term care insurance kicks in.

Q: What insurance options are there for funding long term care?

Ms. Dorsey: One of the most common fears is that a person buys a long term care policy and then never uses it. Therefore, they feel that money was “wasted.” You commonly don’t hear this concern with homeowners or auto insurance. However, one way to make sure you are guaranteed some financial value from purchasing long term care insurance is to purchase life insurance with a health care rider. This way, if you need long term care, you can pull money from your life insurance. If you never need this money for health care, then your beneficiary receives the life insurance proceeds upon your death. If you do need the money for health care, it is there for you and your heirs will receive whatever money is remaining. It is a good way to “hedge your bets.”

Q: What happens to retirees who can’t afford to self-fund or buy long-term care insurance?

Ms. Dorsey: Well, there are a few options for retirees who can’t afford to self-fund or purchase long term care insurance. If they are a homeowner, they can consider a Reverse Mortgage Line of Credit. Just be sure you get references to find a reputable lender with reasonable fees. You can also shop around for care. If you are flexible, depending on where you live, care can be cheaper in another state. Also, the type of care you receive can reduce the cost. For example, sharing a room at a senior living facility cuts the cost. Lastly, family assistance may be an option. Again, if you are flexible, there are ways to reduce the costs.

• What Is a Miller Trust and How Does It Help Medicaid Eligibility?
• Determine Your Long Term Care Needs
• What You Need To Know About Long Term Care Insurance Before You Retire
• What You Should Know About Medicare Before Age 65
• Can a Reverse Mortgage Safely Boost Retirement Income?

Reviewed December 2023

About the Expert

Angela Dorsey, CFP®, MBA, Principal of Dorsey Wealth Management, is a fee only financial planner in Torrance, California specializing in Women and their Families. Comprehensive financial planning services include Investment Management, Retirement Planning, Tax Planning, Estate Planning, and Insurance Planning. You can visit her website at DorseyWealth.com for more information about her practice.

About the Author

Gary Foreman is the former owner and editor of the After50Finances.com website and newsletters in 1996. He's the author of How to Conquer Debt No Matter How Much You Have and he's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com.