Are you prepared for this annual expense of $94,900 in retirement? | personal finance

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When you save money for retirement, chances are you’re thinking about how to cover the costs of housing, health care, food, travel, and other necessities and indulgences.

Unfortunately, there’s one big expense you could face that you could easily forget, especially if you’re young and healthy. The problem is, if you don’t think about it and plan for it, you could deplete your savings and end up hurting your spouse’s finances or not being able to leave a legacy to your loved ones.

You don’t want to find yourself in this difficult situation, so it’s best to start preparing as soon as possible.

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This is a big expense that you can’t forget to plan for

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One of the biggest expenses retirees are likely to face is often overlooked. That expense is long-term care costs. According to the Genworth Cost of Care survey, the national average cost of a semi-private room in a nursing home is $94,900, while a private room is even more than $108,405 per year.

Obviously, this is more money than most people can comfortably spend. In fact, even a few months of nursing care could quickly deplete your retirement savings. And, unfortunately, it is an expense that many people end up facing. A person who turns 65 today has about a 70% chance of needing some long-term care service, according to

Unfortunately, the cost of care only goes up every year. If you’re a long way from retirement, it’s very likely that nursing homes will end up with an even higher price when you need their services.

How to prepare to cover the costs of long-term care

The first step in preparing for the huge expenses of a nursing home is realizing that these costs are possible. Many people incorrectly assume that Medicare will cover their nursing services, but in fact, Medicare generally pays nothing for routine custodial care, the kind of care that sends most people to a nursing home.

If Medicare doesn’t pay for your nursing care, you have three main options for covering the costs:

  • Pay out of pocket. This will require a lot of savings, especially if you don’t want to spend all of your assets on care and leave nothing behind for your loved ones. This will definitely need to be factored into your retirement planning process.
  • Trust long-term care insurance. Long-term care policies can be a good option, but it’s best to buy them at a younger age to prevent premiums from becoming prohibitively expensive. You’ll also want to make sure you read the fine print and get a policy that actually provides comprehensive coverage, as some insurers have exclusions or daily limits that may make them ineffective in protecting your finances.
  • Participate in Medicaid planning. This typically involves working with an estate planning attorney well in advance of the time nursing home services will be needed. You’ll take steps to protect your assets while you qualify for Means-Tested Medicaid benefits. This approach can work because Medicaid pays for nursing home care, but it can take a lot of effort and expense.

It is up to you which of these three approaches you decide to take. The important thing, however, is that you consider the high probability that you will need nursing care and make a plan to pay for it without depleting your savings.

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