Avoiding Sticker Shock from the Average Nursing Home Cost

When planning for retirement, most people think about their monthly income needs, but you need to consider the average nursing home cost.


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You’ve done it! You’ve finally set aside a nest egg that will either generate enough income or supplement Social Security enough for you to retire in comfort. At this stage in life, you’ve passed most big-ticket expenses (like tuition, the cost of a wedding, buying a home, paying for children) but there are still two possible yet unpredictable expenses that can completely change your financial future: healthcare and nursing or long-term care. The average nursing home cost can easily approach six figures over the course of a year.

The American Council on Aging has compiled a list of the average nursing home cost in each state, which is further broken down by geographical area. Prices range widely from around $170/day in parts of Texas to over $1,100/day in Alaska, where nursing care can be particularly difficult to find.

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The unique challenge of analyzing the average nursing home cost and how it will affect your financial planning is due to the unpredictable nature of aging. Many adults spend their golden years living independently and only need limited nursing care services at the very end. This is the type of aging that Medicare is designed to address. (Medicare pays for the first 20 days and then 80% of the next 80 days, with no coverage beyond 100 days.)

Unfortunately, some retirees (about 14% according to the U.S. Department of Health and Human Services) require some level of assisted living or nursing care for more than five years. With the average nursing home cost being as high as it is, those individuals would be faced with a $500,000 expense if they were in a full-time nursing care facility.

Planning Ahead for the Average Nursing Home Cost

So, what can you do now to be prepared to cover the average nursing home cost?

Take an honest look at your health. Understanding your overall physical health as well as your family history is probably the best predictor for your care needs in the future. If you have a family history of longevity but also a greater need for care, you should have a plan in place for covering those costs. Medicare, as mentioned above, will provide only limited care, and Medicaid can offer more assistance for low-income individuals, but that assistance means you have less discretion in the type of care you receive. (Medicaid will cover shared room costs, but not private room costs.)

Consider care alternatives. Do you really need to pay for full-service care, or can you remain at home with part-time in-home nursing care? Is an assisted living facility right for you? If you’re healthy and independent, an assisted living facility may be a better option as they are typically less than half the average nursing home cost. There are also hybrid facilities that can transition services from assisted living to more intensive nursing care when needed, which can offer cost savings up front and more care at a higher price should you need it.

Put a nest egg inside your nest egg. If you’ve set aside a large enough retirement portfolio, you always have the option of treating a portion of that portfolio as cost-of-care savings. In this scenario, you’ll likely want a conservative investment that you don’t need to rely on for daily expenses. You can treat these assets as an insurance policy of sorts, where they’re available if needed, and should you not need those during your lifetime, they can be treated as a legacy investment to be passed to friends, family, or charitable causes.

Look into long-term care insurance. There are a wide variety of long-term care insurance products available to you, and rates are significantly more affordable the younger you are. Rates can (and will) rise as you get older, so it’s important to do your due diligence when investigating policies. But if having a high degree of freedom in selecting both the facility you’d like to live in and the level of care available is important to you, long-term care insurance can be a valuable tool.

The average nursing home cost may give you sticker shock up front, but with a better understanding of your personal situation, a good grasp on what you’d like your golden years to look like and a little financial planning, it doesn’t have to catch you off guard.

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