Start planning now: 4 options to pay for long-term care

Photo of two women talking about long-term care.

As you get older, are you ready for the possibility that you’ll need to pay for long-term care? Whether it’s in-home care or a nursing home, long-term care can be expensive. Assisted-living facilities average around $48,000 per year, and a semi-private room in a nursing home is more than $80,000 per year.1 And according to National Care Planning Council data, the average length of a nursing home stay is a little more than 2 years.2 Now consider that Medicare probably won’t cover those costs.

Can your current plan for retirement incorporate those costs?

You can start planning now to help answer that question, which will help reduce stress, potentially ease the burden on loved ones, and allow you the most choices for long-term care coverage. 

Some of your main options are:

1. Medicaid

Medicaid is a federal program, administered by each state, that helps pay medical expenses and long-term care costs for people with low income and few assets. While Medicaid may pay for long-term care costs, there are strict financial rules for eligibility. That often means spending down your assets before coverage kicks in. In doing so, you may lose your ability to leave a financial legacy to your family or a charity.

If leaving something behind is an important part of your financial picture, you’ve got other options.

2. Long-term care insurance

This is an insurance policy that helps pay some of the expenses associated with long-term care that aren’t covered by health insurance. Policies could cover care at home, assisted-living facilities, or nursing homes. Like other insurance policies, you’ll select the amount of coverage you want and pay premiums. When you need coverage, there’s typically a period of a few months before the insurance company will begin reimbursing you for long-term care expenses.

But you have to plan ahead to count on long-term care insurance. You can’t wait until you need care to get coverage.

Buying a policy in your 50s or 60s would be ideal, if that’s an option for you. 

One of our top retirement professionals looks at how to cover the high costs of long-term care.

3. Other insurance and guaranteed options

There are other types of insurance and guaranteed income options. Some life insurance policies may allow you to borrow against the policy or withdraw benefits early in certain cases to help pay for long-term care expenses. Check with your insurance carrier or financial professional for more information about these features and how they affect the death benefit of the life insurance policy.

Income annuities are another option. Annuities are contracts between you and an insurance company. You pay a lump sum up front, and in return, the insurance company pays you a guaranteed annual income. Besides providing regular income in retirement, some annuities have special contract terms designed specifically to help cover the costs of long-term care.

4. Self-funding

Self-funding might mean tapping into your savings, retirement, or investment accounts. Self-funding for long-term care requires a lot of time, a lot of assets, or both. And there’s the risk that the expenses from long-term care could exhaust your retirement savings.

If you can really plan ahead, you might be able to invest money over time to cover long-term care expenses. You might even set up an account specifically to spend on long-term care.

A Roth IRA (individual retirement account) is an option. These retirement accounts allow you to put in after-tax money and withdraw it tax free later in life. And unlike a traditional IRA, Roth IRAs allow you to withdraw money before retirement without paying a penalty. Unlike a 401(k) or traditional IRA, you’re not required to withdraw a minimum amount of money at any specific age. So you could leave the funds in the Roth IRA until you needed them to cover long-term care costs.

Find someone to help

A holistic plan to pay for long-term care probably includes several of the options mentioned above. A financial professional can help weigh your options and find a solution that fits together with your other retirement and long-term financial goals.

Ready to get started?

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  • Got a financial professional? They can help you figure out your next steps. If you’d like to meet with one face-to-face, we’ll help you find one.

1 Genworth 2018 Cost of Care Survey, June 2018, https://pro.genworth.com/riiproweb/productinfo/pdf/131168.pdf

2 https://www.longtermcarelink.net/eldercare/nursing_home.htm

Long-term care insurance is not offered by any member company of the Principal Financial Group®.

Insurance products issued by Principal National Life Insurance Co (except in NY) and Principal Life Insurance Co. Plan administrative services offered by Principal Life. Securities offered through Principal Securities, Inc., 800-247-1737, member SIPC and/or independent broker/dealers. Principal National, Principal Life, and Principal Securities are members of the Principal Financial Group®, Des Moines, IA 50392.