by Gregory Stringfield, AAMS
Published: June 2006

Planning for your future entails a certain degree of financial foresight. It’s hard to predict exactly where you’ll be in 10 years, 20 years, or even further down the road. And while we’re looking ahead to the joys of travel and relaxation and the other benefits of retirement, it’s easy to not prepare adequately for unexpected health problems that could occur during that time – or possibly sooner.

When you think about building your nest egg, you probably have goals in mind for what you want to accumulate, and you may even have ideas about how you will spend that money. But long-term care is probably one of the last things you may think of.

Unfortunately, many of us will likely be affected in one way or another by a serious illness or injury that will require some form of long-term care. The prospect of depleting your hard-earned retirement savings to pay for long-term care can be frightening. However, if you take the time now to plan ahead, you can prepare yourself financially should you ever find your long-term health in jeopardy.

Long-term care refers to the assistance you may need as a result of a disability or a prolonged illness. It usually encompasses a broad range of supportive medical, personal and social services designed to help people who simply can’t meet their basic needs and live independently for an extended period of time. This type of assistance can be given either in the home or at a long-term care facility.

Funding for long-term care can be expensive depending on the length of time and the specifics of the type of care needed. For these reasons, you should carefully assess a variety of possibilities and develop a plan that could cover different situations. The following are three basic ways you can fund long-term care:

Self Insurance – If you have assets that can easily be converted to cash, you can plan for long-term care by setting aside a special fund just for that purpose. Investments such as an IRA or an annuity provide the means for money to accumulate until an illness occurs. The main advantage of insuring yourself this way is that the money will be available for other purposes if you never need it for long-term care. On the other hand, the main disadvantage of setting aside your own funds is the possibility of falling short in your savings, causing you to dip into other funds to pay for long-term care. Also keep in mind that taking large distributions from an IRA could affect your income taxes. If you take it upon yourself to establish the funds for long-term care, make sure you plan carefully so you will have enough if you need it.

Medicare, Medicaid and Health Insurance – Many people believe they can count on their current health insurance or Medicare or Medicaid to pay for long-term care expenses. What many people don’t know is that most health insurance policies don’t cover the costs associated with long-term care. While Medicare offers medical benefits to eligible seniors, its long-term care benefits are very limited. Medicaid, designed for individuals who do not have the income or assets to pay for long-term care, requires that you first deplete most of your assets (with limited exemptions) before you can qualify. Relying on any of these three options could put you in a bad position if you eventually require long-term care.

Long-term Care Insurance – While providing tax-free benefits, long-term care insurance offers specific protection against the high costs of extended health care. For a simple monthly premium, you get a policy that pays a fixed dollar amount for care you can receive in a variety of settings, including your own home. This specialized insurance could help you avoid spending your own assets, and may even enable you to maintain your lifestyle without suffering the financial burden of long-term care costs.

However you decide to prepare for your future health care needs, keep in mind that you may eventually need the services of long-term care. Planning accordingly can help you avoid a financial disaster down the road.