Broker Check

Your Extended Care Strategy

March 11, 2020

Do you have an extra $33,000 to $100,000 to spare this year? How about next year, and the year after that? Your answer to these questions is probably "no."


What could cost so much? According to the AARP Public Policy Institute, a year of in-home care costs a senior roughly $33,000. A year at an assisted living facility? About $45,000. A year in a nursing home? Approximately $100,000.[i]


Medicare has limitations. Generally speaking, it will pay for no more than 35 hours per week of home health care and only up to 100 days of nursing home care, following a hospitalization. It may pay for up to six months of hospice care. If you or someone you love happens to develop Alzheimer's disease or another form of dementia, Medicare will not pay for any degree of room and board for them at an assisted living facility.[ii]


Medicaid is another resource entirely. For eligible seniors, Medicaid can pick up assisted living facility or nursing home expenses, and even in-home eldercare, in some instances. Qualifying for Medicaid is the hard part. Typically, you only qualify for it when you have spent down your assets to the point where you can no longer pay for extended care out of pocket or with insurance.2


An extended care strategy may factor into a thoughtful retirement strategy. After all, your retirement may be lengthy, and you may need such care. The Social Security Administration projects that a quarter of today's 65-year-olds will live past age 90. A tenth of them will make it to age 100.1


Insurance companies have modified extended care policies over the years. Some have chosen to bundle extended care features into other strategies, which can help make the product more accessible. An insurance professional familiar with industry trends may be able to provide you more information about policies and policy choices.


Waiting for federal or state lawmakers to pass a new program to help with the costs is not much of a strategy. It is up to you, the individual, to determine how to face this potential financial challenge.2


Regardless of your lifestyle, the statistics suggest it's possible that you may need extended care.


Individuals can contribute to an HSA as long as they have an HDHP and have not enrolled in Medicare Part A, B, or D. Once they enroll in Medicare, they are no longer able to contribute to an HSA. Remember, if you withdraw money from your HSA for a nonmedical reason, that money becomes taxable income, and you face an additional 20% penalty. After age 65, you can take money out without the 20% penalty, but it still becomes taxable income.[iii]


There are also some HSA rules and limitations to consider. You are limited to a $3,500 contribution if you are single; $7,000, if you have a spouse or family. Those limits jump by a $1,000 "catch-up" limit for each person in the household over age 55. Your employer can contribute, but the ceiling is cumulative between your contributions and theirs. For example, say you are lucky enough to have your employer put a hypothetical $1,000 into your account in 2019; you may only contribute as much as the rest of your limit, minus that $1,000. If you go over that limit, you will incur a 6% tax penalty, so it is smart to watch how much you contribute.3


One thing is for sure: any retiree or retirement saver needs to keep the possibility of extended care expenses in mind. Today is not too soon to explore the financial options to try and meet this challenge.