How Will You Pay For Long-Term Care?

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OCEAN CITY – We’re all living longer — and paying more to stay healthy. The rising cost of health care is a major worry for retirees as well as those approaching retirement, and no matter what happens with the reform legislation currently being debated in Congress, it’s likely to continue to be a concern.

Most worrisome of all, perhaps, is the cost of long-term care (LTC). It’s estimated that 70% of Americans over age 65 will require some form of long-term care1, which Medicare typically does not cover. Meanwhile, costs for some LTC services—visits from a home health aide, full-time nursing home care and an array of services in between—have risen at nearly twice the rate of overall inflation for each of the past five years.2

These statistics can cast a pall over the healthiest retirement nest egg. “A long-term illness could have a serious impact on retirement income and wealth-transfer plans,” says Deborah Adler, Managing Director, Head of Merrill Lynch Global Wealth and Investment Management Life Insurance & Annuity Business. Fortunately, investors can draw from a range of possible strategies to help protect their retirement and wealth transfer plans against the potential impact of illness and aging.

Most investors know they should set aside extra savings to cover health care costs during retirement. But deciding how to allocate that money can bring on a bad case of insomnia. The answer depends on a number of factors, including your age and health prospects as well as your financial circumstances.

“No matter what decision you make, it’s important to put it in the context of your entire portfolio,” Adler points out. “Whether you opt for an investment specifically designed to cover health care expenses or choose to pay out-of-pocket when you need care, you’re committing a portion of your retirement savings to meeting these costs.”

For this reason, it’s important that you apply the same framework of risk tolerance and personal vision you use for all of your investing decisions to preparing for health care costs. Here are four of the most commonly relied-upon solutions, and how they might play a role in helping you balance your financial goals with your health care needs.

Long-term care insurance is perhaps the most familiar option and is designed specifically to help pay the expenses associated with a long-term health problem. Long-term care policies cover many major costs that aren’t covered by Medicare, such as home health aides and nursing home care. But because they are designed for this need, they tend to have the highest cost. Some people, concerned about paying for a long-term care policy and not using the benefit, prefer an option with more flexibility. Still, if you’re concerned about protecting your estate plans and other assets from bearing the brunt of LTC expenses, a long-term care policy may make sense for you. Weigh the costs against your risk tolerance, and ask yourself how you might otherwise meet these needs: One year of at-home care at 12 hours daily currently can cost nearly $100,000 — while three years in a nursing home might easily reach $200,000.

It’s impossible to foresee exactly how much money you will need to cover future health care costs, of course. But with these choices, you have a wide range of options to help you manage your long-term care needs, whatever they may be. Putting one of them in place now could help you overcome your fear of the unknown medical costs you could face later on.

(The writer is a Merrill Lynch Senior Financial Advisor. She can be reached at 410-213-8520.)

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