The Big Retirement Mistake and How to Avoid It

by Danielle K Roberts
(Dallas, Texas, USA)

Many of us will get to a certain point in our lives where we are no longer able to care for ourselves. In that event, our family then generally provides care themselves or sets up long-term care for us, such as a move to an assisted living facility or nursing home. This can be a tremendous cost if there was no pre-planning, and the last thing we want to do is burden our children with having to find the means to pay for something as expensive as long-term care.

In 2016, the average monthly cost for a private room in a nursing home was $7,698. Semi-private rooms weren’t much more affordable at $6,844. You can probably imagine how the average prices have increased since then.

The average hourly wage a home health aide made back in 2016 was $20.50. That doesn’t include price increases for extended hours or weekend hours. No matter what form of long-term care you may need in the future, you can bet your bottom dollar that it will be expensive.
That’s why not saving up for long-term care costs is one of the biggest retirement mistakes you can make. Not putting aside enough money for the possibility of having to move into a nursing home burdens both you and your family.

Medicare and Long-Term Care

You may think, “I’m fine. Medicare will cover it if I ever need it.” Regrettably, you’d be wrong.

Medicare doesn’t cover long-term care if the only care you require is custodial care. Therefore, if you move into a nursing home because you simply can’t live alone and need help with the activities of daily living, then Medicare won’t cover it.

Medicare does, however, cover shorter term stays at skilled nursing facilities if the stay is preceded by an inpatient hospital stay of at least 3 days. Also, recently in 2019, Medicare Advantage plans have been able to start offering some services such as adult daycare, in-home custodial care, and other similar care services. Benefits vary by plan, but do not cover long-term care stays.
As a matter of fact, most forms of insurance don’t offer custodial or long-term care. That’s why long-term care insurance is available.

Long-Term Care Limitations

Custodial care, usually what long-term care consists of, is care given to someone to help them with activities of daily living. Activities of daily living are things like getting dressed, bathing, eating, going to the bathroom, etc.

With long-term care insurance plans, the policyholders can be reimbursed a specified amount for custodial care services. When enrolling in a long-term care policy, your premium will be based on multiple things such as your age, the max payment per day for services, the max amount of time the plan will pay, and more. You can also add benefits to cover inflation in many policies. They are customizable.

For instance, some long-term care policies may only cover your custodial care services for 5 years, while others will cover them for your lifetime. Of course, the lifetime policy will be much more expensive than the short-term policy.

Therefore, even long-term care insurance has its limitations. This proves more truth in saying that not saving for long-term care costs in retirement can be one of the biggest mistakes you make.

How to Save for Long-Term Care Costs

Arguably, the best way to save for future medical expenses including long-term care costs is enrolling in a health savings account (HSA). An HSA is a savings account for medical expenses. It allows you to contribute money tax-free and then that money grows and earns interest over time.

To qualify for an HSA, you simply need to be enrolled in a qualified high deductible insurance plan. If you qualify, you usually can get an HSA through your employer, your local bank or via an online bank. Once you’re enrolled in an HSA, you can contribute up to $3,500 individually or $7,000 as a family in 2019. This typically increases a bit each year.

You can use your HSA funds for your spouse’s and your immediate family member’s medical expenses as well. If you save diligently throughout your working years, you can retire with a sizeable amount of money set aside for future long-term care expenses.

Start Sooner Rather Than Later

The sooner you enroll and start saving with your health savings account, the more you will have set aside for your long-term care costs. If you age well and don’t need long-term care, you’ll have that money for other medical expenses such as your Medicare premiums.

Also, if there comes a time you need to dip into your HSA for non-medical expenses, you can withdraw some money from your HSA once you are 65. The only thing that happens when you do that is you will have to pay normal taxes on the money you withdrew.

It’s better to have a rainy-day fund and not need it than to need one and not have it.


Danielle K Roberts is the co-founder of https://boomerbenefits.com where she and her team help baby boomers navigate their Medicare insurance options. She is a member of the Forbes Finance Council and writes frequently about Medicare, retirement and personal finance.

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