Senior Guidance

Ways to Budget for Long Term Care and Retirement

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7 Ways to Budget for Long Term Care and Retirement

Retirement should be a time when seniors relax and enjoy their golden years. However, this will only happen if a person starts planning early. Having a solid plan means one gets to have more fun and less stress in their later years.

During one’s peak earning years, both men and women should not be spending all their money, as they should be thinking about setting some aside for older age when they will no longer be able to look after themselves and will no longer be working. It is something that can ensure they have adequate amounts in place for a rewarding and active retirement. 

Although nobody likes to think about long-term health care and senior living, especially in their healthy and younger years, it is a crucial aspect. Statistics indicate that about 70% of retirees who are 65 years and over at some point require long-term care. Costs for long-term care may be higher than you think and will probably keep going up as the years go by.

For example, residing in a private room in a nursing home for a year on average costs nearly $100,000 while one will have to part with almost $50,000 for a home health aide or homemaker services. The more affordable senior living option is assisted living, which currently carries an average nationwide cost of around $45,000, with some states far below and far above this cost. The prices can go way up depending on the services that a person requires and the type of facility one decides to live in (Alzheimer's facilities will cost more for example). Moreover, many older adults choose to live in retirement communities, and these can get quite pricey as well (especially the luxury retirement communities).

Fidelity states that an average 65-year-old couple will most likely spend around $250,000 on health care alone in their senior years.  For this reason, when planning for retirement, include the long-term care costs as well to be on the safe side. To be in the best position to comfortably afford the type of lifestyle you want in retirement, here are some ways to budget and save for all the resources one will need in their retirement years:

Start Small

Budgeting with retirement or long-term care in mind does not mean that you end up living a miserable life where you forego life’s little pleasures. Individuals can begin with some small steps like brown-bagging lunch instead of eating out. It can free up some dollars that a person can put aside for their later years.

The move can also help an individual look after their health better since eating home-made food will most likely be a healthier choice. For this reason, saving the money that would have gone to dining out can also extend to a reduction in healthcare costs. Opt to shop at the local farmers market or groceries that offer better prices for higher quality products. Keep in mind that everyone needs to take good care of their bodies regardless of age to avoid multiple visits to the doctor which can put a dent in the wallet.

Be sure to look out for all the possible little saving opportunities as well. For instance, when a small child is finally off diapers and formula, channel the money for such expenses towards retirement. These small amounts usually add up, especially when a person is in their 20’s or 30’s and with the help of compound interest. It helps to commit to increasing the savings you put aside every month or year for impressive results when the time for retirement comes.

Let Budgeting be Part of You

It is good to know your budget and what you can and cannot afford. Get to know how much money comes in and what you are spending it on. Having fixed costs helps to make things a lot easier. For instance, if you spend around $80 dollars on groceries weekly, budget for a flat $100 every week. Where possible, you can also look for utility companies that allow monthly billing so that you know the amount to pay. 

Nowadays, people can install useful budget apps on their phones, tablets or laptops that help them track their incomes and spending habits. Some even come with extras such as reminders for text alerts so that users do not incur any late fees. Having a reasonable budget is also key to spending wisely so that you can have some money to put aside that will come in handy as one becomes older.

Take Advantage of 401k and Similar Retirement Plans

Individuals in employment can save using a 401k plan. It is typically an ideal option especially in cases where employers match the contributions of their employees. The contributions usually come from paychecks before taxes, making it quite painless to save while at the same time helping one to keep a lid on their tax rate. Always strive to save at least one percent more in the 401K yearly and soon enough it will be possible to max out contributions.

When 401k is not an option, open a personal retirement account. Some banks and brokerages do not need minimum initial contributions and even waive initial deposit requirements when clients sign up for direct monthly deposits. Do thorough research to know the best banks to work with. From here find out how much the institution allows one to contribute to the IRA and put effort towards paying the maximum amount. Take advantage of online calculators to know how much to put in an IRA if there are any uncertainties.

Refinance your Home

Despite the fact that loan mortgage rates are at a reasonable amount, the possibility of them creeping up is still high. Do enough research and look for recommendations into the best mortgage refinance specialists.  Get at least four quotes and compare terms, rates, and potential penalties to work with the provider that has the best deals. It allows homeowners to earmark monthly savings to put in a separate account that they will designate for retirement.

Get an Energy Audit in your Home

Discover multiple ways to reduce energy costs in the house by conducting an energy audit. Instead of doing all the hard work, it is best to let the energy providers do the job. The experts will come in and complete a thorough inspection, providing a comprehensive report that details all saving techniques you can use to ensure you do not pay for something that is not necessary.

Avoid Credit Card Debt

People who are fond of using credit cards should start paying them down as soon as possible so that they do not end up with a lot of debt in their names. Individuals who have trouble disciplining themselves can try and cut up the cards or leave them at home. Operate on a rule that states that if a person cannot afford to pay it off by end month, it means that they do not have enough cash for it. Living by the rule is highly beneficial in that an individual will be happier knowing that their sunset years are financially secure and they haven’t thrown any money away into credit card fees.

Get Long-term Care Insurance (LTCI)

Getting LTCI is an example of a classic financial planning solution that people take to handle uncertain risks that come with potentially hefty price tags.  Deciding whether to buy a policy sadly is not an easy decision to make. It is because it does not present a “one size fits all” answer. It is safe to say that wealthy people do not need it while those with more modest means may have difficulties affording it, forcing them to depend on Medicaid heavily. However, candidates who do not belong to either category should consider long-term care insurance as part of their retirement planning strategy.

Keep in mind that before the policy starts paying for care, the providers require a person to demonstrate that they have lost the ability to engage in at least two daily living activities. These can include anything like toileting, eating, dressing, taking a bath, continence, and walking. Before going out to invest in a beneficial policy, there are some factors one must consider like:

  • Health and age - policies will cost less for people who are in good health and younger.  It may not be possible to get coverage when one has a severe health condition or of old age and if one does they may have to dig deeper into their pockets.
  • Income - if an individual is already having challenges keeping up with bills and has few assets, getting this kind of insurance may not be a viable option. Instead look into Medicaid which pays for nursing home care in a majority of the states and also covers some amount for those who need home care. One must, however, meet the eligibility requirements to take advantage of Medicaid.
  • Premiums - individuals should check the premiums they will be paying to gauge whether they can afford them in the present and the future without breaking their budgets. Remember that premiums increase over time, and income will most likely decrease. If a person cannot pay their premiums, losing all their investments becomes a possibility. 
  • Taxes - the government rarely taxes benefits that long-term care policies pay out as income. Additionally, providers today sell most of their policies as “tax-qualified.”
  • Investments and savings - a person may consult a financial advisor who will advise on the best possible ways to save for long-term care expenses as well as the pros and cons of taking the policy.
  • Support system - think about family and friends who can help with some of the long-term care needs and how much to reasonably expect from them.
  • Investigate the best option - should one feel like LTCI is the best option for them, they should take time to know all the possible options they have. Compare policies and most importantly, read the fine print to get to see the plans in detail. Scrutinize the company to invest in to make sure that it checks out and it will work for your best interest at the end of the day. Where possible, review the coverage on a yearly basis to get something that works out well for the long-term.

Perks of Investing in Long-term Care Insurance

Some of the advantages of looking into this direction include:

  • Reserves assets and savings for relatives or friends
  • Helps to maintain a person’s financial independence from their family members or friends which gets rid of the need to borrow money to cover long-term care costs.
  • Allows seniors to choose the place where they want to receive care. Individuals can design their policies depending on the facility where they want to stay in their golden years, be it at home, in an assisted living community near them, nursing home, or in the community.
  • Relieves kids, other family members and other loved ones from taking care of the elderly because paying for expert help becomes a reality and an affordable option.
  • It expands the range of services that aging adults can take advantage of. This can include care from visiting home health aides, nurses, and family-friendly visitors’ programs. It can also include adult day care centers, home-delivered meals, chore services and respite services.

Sources of LTCI’s:

When searching for long-term care policies, some of the options to explore include:

  1. Individual plans - it is where a person gets a policy from a broker or an insurance agent. Going this route demands that clients work with professionals who have extra training in the type of insurance and is licensed to offer the services.
  2. Plans Sponsored by Employees - some employers deal with group long-term care policies or even make individual ones available at discounted rates. In most cases, should a person leave the employer they will still be able to retain the policy or receive similar terms if they plan on continuing to pay the premiums.  
  3. State partnership programs - when one buys LTCI policy that qualifies for any State Partnership Program, they get to retain some asset and still have permission to benefit from Medicaid.
  4. Plans that Organizations Offer - a service or professional organization that an individual belongs to might be in the business of offering long-term care insurance policies where they give people group rates. Read through terms to be sure of what will happen if a member were to leave the organization or terminate coverage.
  5. Joint Policies - these are ideal for couples as they allow a person to buy a single policy that covers more than one person. Two adults who are related can take advantage of joint policies when it comes to long term care insurance. Typically, there is usually a maximum or total benefit that applies to everyone that the policy insures.

As you enjoy your younger years, make sure you have solid plans that will enable you to get to retirement years with financial safety.




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