In 2012, the median annual cost of a room in a nursing home was $84,000.
But depending on where you live, it can be as high as $120,000. And this is for a basic, no-frills operation. Add anything to it and the price skyrockets.
The future cost of these facilities, when you and I will need them, really starts to get scary when you consider the pressure that will be put on them in the next 30 years as the boomers age.
If you haven’t already done it, you need to plan now for when you can’t care for yourself.
Here are three options for filling this growing gap in just about everyone’s retirement planning…
1. Long-Term Care Insurance
Purchase a long-term care policy now. It is cheaper than later in life.
On average, if you are 55 and start paying on a policy now you will have contributed about $75,000 in premiums by your 85th birthday and would be eligible for over $800,000 in benefits.
But wait until you’re 70 to start paying and you will pay almost $100,000 in premiums and be eligible for just $310,000 in benefits.
Earlier is better.
2. Charitable Remainder Trusts
Next, consider a charitable remainder trust (CRT) for yourself.
If you don’t go the insurance route, a CRT is the next best solution – maybe the best solution if you are in a high tax bracket.
It’s simple enough. You set up the trust and make a lump-sum payment, or payments, to the trust on your behalf. You then draw from it when you need it for your care either in a fixed monthly amount or for the remainder of your life.
The beauty of this plan is that you can deduct any payments made to the trust. Payments are tax-deductible.
When you start drawing money from the trust the distributions are taxable. But at that point you will be in a much lower tax bracket.
It’s a win-win from a tax perspective, but you will be funding the whole thing. I like that one a lot. And I am not aware of any deduction for payments to an insurance policy.
3. Life Insurance Liquidation
The other possibility is liquidating life insurance to make a one-time payment on a long-term care policy or for a contribution to a CRT.
This is a viable solution for many and puts the cash value of their life insurance to excellent use.
But if you plan on financing this yourself, you need to start… yesterday. Medical costs are skyrocketing and the stress the number of retired persons will place on Medicare in the next 30 years virtually guarantees it will not be able to fund all of our long-term care needs.
A policy, a CRT… or sell your life insurance. But you can’t go into this unprepared.