Many baby boomers not prepared for long-term care

Amy Higgins

As baby boomers approach retirement, it’s important they know their health care will be covered in the future. While most baby boomers will collect benefits from Social Security and Medicare, and some will have additional income from individual retirement accounts or other savings, their benefits may not cover health care expenses if they live longer than expected.

According to a January 2011 Society of Actuaries study, more than one-third of Americans age 45 to 70 are worried about running out of money during retirement — but just 20 percent plan to protect their assets with annuities or some form of guaranteed lifetime income. So unless you have a substantial amount of savings put aside, you may want to look into some options for health care during retirement to ensure your medical bills get paid.

Long-term care insurance

Long-term care insurance could help pay for health care that might not be covered through a conventional health insurance plan or Medicare. When you buy a long-term care insurance policy, you will be required to pay set premiums. In return, you will receive benefits when you need them later in life.

According to the U.S. Department of Health and Human Services, most policies today are comprehensive, but some people prefer to buy facility-only policies. This means the policyholder must be in a nursing home or assisted living facility (not at home) to receive benefits.

Long-term care insurance can be an attractive option for those who need additional health care coverage — but it isn’t for everyone. Wakely Consulting Group, an actuarial firm, studied applicants for long-term care insurance between 2003 and 2004 and found that 11 percent of applicants in their 50s, 19 percent in their 60s and 43 percent in their 70s were rejected, according to the Insurance Information Institute. Needless to say, some baby boomers may need to look elsewhere for supplemental health care coverage.

Medicaid

Medicaid might be a good option for those who expect they will have a small amount of money in retirement. To qualify, you must meet state requirements and be unable to afford to pay for some or all of your medical bills because of limited income. In some states, people with Medicaid may get coverage for nursing home care, home care and prescription drugs that Medicare doesn’t cover, according to Medicare.gov.

Annuities

An annuity could be a good choice for baby boomers who qualify and can afford to pay for one. With a deferred annuity, you make premium payments now and collect benefits when you need them later in life. An immediate annuity might be a wise option if you have the means to pay a lump sum.

Other than Social Security and defined-benefit pension plans, immediate annuities are the only other source of income available that continues indefinitely, according to the Insurance Information Institute. After you pay for an immediate annuity, you’ll almost immediately start receiving payments from the life insurance provider, charity or trust that you’ve contracted with.

How much is enough?

The Center for Retirement Research at Boston College projected that an average American couple retiring in 2010 at age 65 would have needed nearly $206,000 to cover health care expenses for the rest of their lives, according to a 2007 Society of Actuaries study. But this estimate does not include long-term care costs.

If you live longer than expected, your retirement funds could disappear and any health care you might need later in life could be unattainable if you’re not prepared. It’s impossible to predict when and how you’ll die, but ensuring your health care or health insurance will be paid for regardless of your age is feasible.