Long Term Care Expenses Put Retirees at Risk

4/02/2009

posted by N. Sioris

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The diabolical collapse of the stock market that has devastated retirement savings for millions of retirees as well as workers, has brought attention to the fact that nearly two-thirds of U.S. households are at risk of not being able to maintain their standard of living after retirement if long term health care costs are factored into the equation.

According to a study conducted by the Center for Retirement Research at Boston College, 65 percent of households will have insufficient income to cover the costs of nursing home care and other end-of-life long term health care costs.

Alicia Munnell, director of the Center for Retirement Research said, "the cost of health care will create such an unexpected hardship on unprepared retiring baby boomers that it's imperative to sound the warning now." She has been concerned for years about the imminent retirement crisis caused by several problems. Those problems include a Social Security system that will fall short of being able to provide current levels of support, insufficient personal savings, and rapidly escalating costs for health care.

Current estimates indicate that one third of people age 65 today will need to enter a nursing home for at least three months. Some will need to stay for an extended period of time.

End-of life health care costs are high. Hiring a home health care aide for four hours a day, five days a week costs nearly $20,000. per year. The cost of a private nursing home is $77,000. per year.

Options for funding this type of care include relying on Medicaid, buying long term care insurance, selling the family home and tapping into home equity through a Reverse Mortgage Loan.

However, even if households work to age 65 and annuitize all their financial assets, including the proceeds from a Reverse Mortgage Loan on their homes, The National Retirement Risk Index has shown that 44 percent of people will still be "at risk." "At risk" means they will be unable to maintain their standard of living during retirement.