Planning for health care in retirement can seem like preparing for the unpredictable. Outside of preventative and chronic care, the need for long-term care and supports can arise suddenly in later years. Medicare has limits on how much of long-term care is covered, and the out-of-pocket expenses can rise quickly.
Individuals just turning 65 today have a 70% chance of needing some type of long-term care services and supports, according to the Department of Health and Human Services. About 65% of people will need some care at home for an average of two years. In facilities, 35% will require an average of one year in a nursing home and 13% will use less than one year in assisted living.
In addition, about 20% of people will need long-term care for longer than five years.
Annual long-term care costs can vary by state, from a high of $250,000 in Alaska to $60,000 in Oklahoma. The 2015 Genworth Cost of Care Survey identified 18 states where long-term care costs average more than $100,000 annually.
Nursing home care, among the most costly, does not always mean permanent residency. An increasing number of people use nursing homes for a short length of stay for rehabilitation. Among seniors, the average length of stay for a man is roughly 10 months and 1-1/2 years for a woman. While Medicare may cover a portion of short-term stay, the rest of the rehab can mean substantial costs to retirees.
The long-term care insurance decision
In addition to including health expenses in an overall financial plan, there are additional considerations including ways to pay for them. Insurance-related options, such as long-term care insurance, may help pay for these costs later in life. But the decision can be a complicated one, as investors grapple with the potential need for insurance, and the cost of premiums, which can be high.
Ultimately, health-care expenses in retirement are part of comprehensive financial planning. It can be helpful to discuss this important portion of the household budget with a financial advisor who understands your individual financial situation. For more information on planning for health care in retirement, see Putnam’s investor education article, “Successful retirement planning must consider health-care factors.”