Most of us are used to the idea that we should have health insurance to help us pay for our medical costs. The reason that it is important to have health insurance is that it gives you peace of mind. If you are a long-term care insurance or retirement planning individual, read on to know the information you need to start saving and planning.
How much is enough for long-term care? The average cost of care for someone in a nursing home assisted living facility or home care is about $85,000 per year. Therefore, the typical person nearing retirement age has $350,000 or more in assets to spend on long-term care. The average individual may have $200,000 to spend on long-term care before having to liquidate any assets. Therefore, there is a gap between what the average person needs for long-term care and what they have available to spend. The average person has two options for saving for long-term care. They can save in a tax-advantaged account such as a 401(k) or an IRA or they can save by buying long-term care insurance.
A review of the available information suggests that most people do not have enough money saved for long-term care. Even those who have more than enough savings may not realize the benefits of buying long-term care insurance.
According to the 2015 National Survey of Long-Term Care Residences, only 39% of the respondents reported using a long-term care insurance policy. The majority of the respondents reported using a private savings account (35%) or having a designated long-term care trust (28%).
There is a mismatch between the needs of the typical person and what they have available to spend.
A review of the available information suggests that most people do not have enough money saved for long-term care. Even those who have more than enough savings may not realize the benefits of buying long-term care insurance. Here are several of the reasons why most people should consider buying long-term care insurance.
One reason is that you have to live for several years to receive most of the tax benefits of long-term care insurance. A 35-year-old may need long-term care for a few months. Therefore, the tax benefits of the policy would have a substantial impact on their monthly budget.
Another reason is that many people have a low savings rate. The typical worker has a savings rate of 2.9%. The median savings rate among working-age households is 1.8%. Thus, the typical person will need to save more than $200,000 or more before having to liquidate assets for long-term care.
There is a tax benefit for paying for long-term care. In addition to receiving the tax benefits of the policy, the premiums paid for long-term care insurance also reduce the amount of income that you pay to the federal government. The benefit of long-term care insurance is similar to the tax benefit of paying for a college education.
Awareness of how long-term care insurance can be beneficial to your retirement plan can help you decide the perfect insurance coverage for your needs. To better understand the different types of long-term care insurance, it is helpful to review the different types of policies available to consumers. Healthbridge Insurance Solutions Palm Desert can help you understand your options. Call us today to set a consultation.