When you are planning for retirement, you are going to be evaluating your projected budget that you will be working within during your senior years. This is going to include typical living expenses along with the costs that you expect to incur as you cross things off your bucket list.
However, when you are making plans you should understand the fact that long-term care costs may be a very big factor.
According to the United States Department of Health and Human Services, most of the people in the United States are going to need living assistance before all is said and done. Many people do receive living assistance within their own homes from family members and friends.
However, a very significant percentage of people who need help with their day-to-day needs reside full-time in assisted-living communities and nursing homes. These facilities are extremely expensive. In Connecticut, a year in a nursing home can easily cost in excess of $100,000.
The average length of stay is over two years. About one in 10 people who reside in nursing homes remain in the facilities for at least five years.
If you’re thinking that Medicare will pay for long-term care if you need it as a senior citizen, you should understand the reality. In fact, Medicare will not pay for long-term care, which is considered to be custodial care. Medicare will only pay for as long as 100 days of convalescent care after surgery.
A government program that will pay for long-term care if you can qualify is Medicaid. Of course, Medicaid is a program that is intended to provide health care insurance for people who have virtually no financial resources.
Because of the fact that long-term care is so expensive, a very significant percentage of people who were qualified for Medicare ultimately use Medicaid to pay for long-term care.
The way that this is typically done is by spending everything that you have that exceeds the upper asset limit before applying for eligibility.
If you plan ahead intelligently, this can be done by spreading your resources among your family members.
When Is It Too Late?
There is a five year look back period that is attached to divestitures of assets prior to applying for Medicaid. If you give away resources within five years of applying, you are penalized. This penalty is going to delay your eligibility date.
As a result of this, you have waited too long if you decide that you need to initiate your Medicaid planning efforts with the knowledge that you will need long-term care within five years or less.
However, this does not make Medicaid planning completely irrelevant. You could engage in what is called damage control and do everything possible to retain as much as you can even though you would not be in an optimal position.