How to prepare for the costs of long-term care

As you look to retirement, consider this: People turning 65 today have almost a 70% chance of needing some type of long-term careFootnote ¹ — and Medicare generally doesn't cover it. No parent wants to be a burden to their children later in life, and no adult child wants to see their parent struggling. With people living longer than in the past, how can you make sure you or your parents will be able to afford whatever care is needed?

While you can't predict your future long-term care needs, you can get an idea of the potential costs and determine whether you are on track to meet them. If you're not, you have time to course-correct.

"Understanding your options for covering these costs can help you put together a long-term care funding strategy that's right for you — one that's based on your age, your family's medical history and the resources you have available to you," says Robert Murray, insurance relationship manager, Investment Solutions & Personal Retirement, Bank of America.

You'll likely have to look beyond traditional health insurance. While some Medicare Advantage plans purchased at an extra cost may pay for certain home care services, Medicare itself offers very limited coverage for nursing home and home health services, and that coverage is subject to strict rules. For example, for Medicare to cover a short-term stay in a skilled nursing facility, you must have had a medically necessary hospital stay of at least three consecutive days, and a physician must deem the skilled nursing facility stay as medically necessary, among other things. That's why Murray recommends putting together a plan for covering future long-term care costs using a combination of the suggestions below.

Once you know what costs you may need to be responsible for — home health aides, assisted living, nursing home stays — you'll have an idea of how much you may need to save. With a ballpark figure in mind, you might allocate a portion of your long-term savings and investments to conservative, more liquid assets that can help you pay for your long-term care needs.

If you are covered under a high-deductible health plan, you can contribute to a health savings account annually and set aside those funds to pay for qualified medical expenses, such as long-term care insurance premiums, on a tax-free basis in retirement.

Keep in mind that if you are counting on paying for future long-term care costs with savings, there is always the possibility that you will end up with too little to cover a major health crisis. Murray suggests countering some of that risk with insurance.

Insurance policies for long-term care cover a range of nursing and rehabilitative services for people who need ongoing assistance due to a chronic illness or disability. While anyone who experiences an accident or debilitating illness can take advantage of long-term care insurance, it is most frequently used by older adults who need assistance with essential physical needs, such as bathing, dressing or eating.

However, long-term care insurance is expensive — especially if you wait too long to sign up for coverage. Many experts recommend buying a policy in your 50s or 60s because the younger you are when you purchase a policy, the lower the premium you'll pay during the life of the plan. You also have to be relatively healthy to qualify for a policy so if people in your family tend to have health challenges at an early age, you may want to buy long-term care insurance sooner rather than later.

If you don't have long-term care insurance and you have limited resources available to cover the costs of care, there are government programs you can apply for that may help. Medicaid is the largest payer of long-term care expenses in the country.Footnote ³ If you're a veteran and covered by VA health care, you may be able to get long-term care coverage through the U.S. Department of Veterans Affairs if certain conditions are met.