Reflections

How Much Does Long-Term Care Really Cost in Illinois?

By Sean Condon, CFP®

When a person goes hiking, they are cautious and keep an eye out for bears.  When merging into traffic, a careful driver looks in their blind spot for possible collision hazards.  When looking to retire, however, there is a dangerous situation that some retirees do not think to look for, and it can cause real damage to financial stability during retirement.

That hidden hazard is the extreme expense of long-term care.  If caught unprepared, a retiree may see their financial situation decline rapidly, and may even find themselves in a crisis.  Here we will discuss the high costs of long-term care, and what you can do to be prepared.

The Danger

Judy had been super careful with her savings over the years, and in retirement, she had a comfortable income of about $80,000 a year.  Then a bad car accident left her needing to be in assisted living care for six months and requiring in-home care for several years after that.

The toll on Judy’s finances was extreme.  After $28,000 for assisted living and $120,000 for in-home care and rehabilitation, her nest egg had taken a big hit. She was forced to reduce her annual withdrawals down to $65,000 to keep her account solvent through the rest of her retirement.  She would still have a roof over her head, but a lot of the extracurricular activities she had planned were no longer going to be a reality.

This kind of story is not unfamiliar and demonstrates the very real danger that not having a plan for long-term care presents.  In 2020 the annual cost of a home health aide in Illinois was about $58,344.[1]  To get a private room at a nursing home facility would increase that cost to $84,315 a year.[2]

Retirees cannot afford to leave long-term care out of the plan.

The Antidote

There are primarily two methods available to prepare for long-term care.  The first is to purchase long-term care insurance.  Basically, you pay an insurance company a premium to carry the risk, and if there is an unexpected health emergency, they foot most of the bill.  While this is a comprehensive way to protect yourself, it does have a major drawback.

The cost of long-term care insurance is very high.  If you choose to go this route, you’ll need to plan to pay costly premiums throughout your retirement.  The amount you pay will depend on how young you are when you get the insurance.  If you are in your 50’s when you acquire your insurance, you will pay much less than you would at age 70.  However, you’ll be paying for coverage that you are a lot less likely to need in your younger years.

Increasingly, retirees are exploring another strategy to cover these kinds of medical expenses in retirement through self-insurance.  To self-insure is to establish enough savings to be able to effectively fund any crisis, without putting your retirement savings at risk.

This can be accomplished in a variety of ways.  You could increase your 401(k) funding, estimating a target of possible expenses and planning to raise those funds by your retirement date.

You might also be eligible for an HSA (health savings account), which is a tax-sheltered saving plan for medical expenses.  A married couple can save up to $7,200 a year into a qualified HSA, and once the minimum threshold has been met, the money can be invested, just like money in a 401(k).

The great thing about this method is that the money you put in is pre-tax, and if it is used for qualified medical expenses, it will never be taxed at all.  If you find that you need access to it during retirement, after age 65, there is no penalty to withdraw the funds for any reason.  You will simply pay standard income tax on your withdrawals.

Though the cost of long-term care is a threat to retirement stability, you can retire with confidence if you have a solid plan in place.

Be Prepared

There are more strategies and methods for preparation for long-term care other than the ones given above.  If you need to work out a strategy that is right for your situation, Windgate Wealth Management has expert help ready to guide you through your choices.

 

To get help putting a plan together for your unique scenario, reach out to us today by calling (844) 377-4963 or emailing windgate@windgatewealth.com.  If you prefer, you can also book an appointment online here.

[1] https://www.genworth.com/aging-and-you/finances/cost-of-care.html

[2] https://www.genworth.com/aging-and-you/finances/cost-of-care.html

Perritt Capital Management, Inc. is the Registered Investment Advisor for Windgate Wealth Management accounts and does not provide tax advice. Consult your professional tax advisor for questions concerning your personal tax or financial situation.

Data here is obtained from what are considered reliable sources; however, its accuracy, completeness, or reliability cannot be guaranteed.

First published June 2021.

Email Sign Up