Should You Buy Long Term Care Insurance For Retirement?

Many Americans seem to have some misconceptions about who pays the bills when elderly people need long term care. Medicare only offers short-term coverage under specific circumstances. Medicaid does pay for nursing care for many American seniors, but this is only after recipients have exhausted most of their other resources. Very few people have enough money to keep paying bills for a nursing home, assisted living facility, or even home healthcare on their own.

How Much Does Senior Care Cost?

According to figures that were published on, American nursing home bills averaged $90,000 a year, and a bed in an assisted living facility cost about half that much. Services at home can vary quite a bit, but they averaged about $21 an hour. It’s easy to see how an expense like this could exhaust the savings of most senior citizens pretty quickly.


Long term care insurance is a type of private health insurance that helps cover these bills. The problem is that these plans have never been standardized, so benefits are confusing for many consumers. Also, it’s often difficult to decide to add another insurance bill to a retirement budget, so long term care has not become that popular in the United States.

On the other hand, many Americans who end up needing senior care do end up exhausting their savings and have to rely upon Medicaid. Having to spend savings and then rely on government programs is the reality for many, but it’s never considered ideal. Most folks would rather save their money for their own use or to pass onto their children and grandchildren.

Is Long Term Care Insurance the Right Choice?

Everybody is different. Some retirees may find that long term care insurance offers them a good value. Some lucky people may even get this type of insurance as a benefit from their jobs, but this isn’t that common. Others might consider an alternative way to plan. For example, some annuities and life insurance policies have features that can help with these expenses. Other retirees may just hold onto their home equity as a way to fund nursing care if it’s ever needed. Couples need to think about the impact of one spouse needing nursing care when the other spouse still can live independently.

Retirement planners need to be aware of the cost of nursing care and who usually ends up paying for it. There may not be one perfect solution for all retirees. However, it’s a good idea to make some attempt to account for this potential expense when making financial plans for retirement.

Is Your Pension In Trouble?

Recent troubles by various pension funds, along with the recent Automakers bailout (which was largely fueled by pension obligations) have shined a bright spotlight on pensions and the economic viability of such. Being that pensions are still a staple of many workers’ retirement plans, the question of whether they can fulfill the promises that were made is an important one.


Sadly, the answer to that question is “probably not”.

To give some background, pensions used to be a common benefit given by employers (especially post WW2 until the 1980’s), and many Baby Boomers and workers in their 50’s are counting on their pensions to help fund their retirement. But almost daily, you hear about pensions being reduced, and the corresponding (and justified) anger of those affected.

Pensions seemed like a good idea at the time – a company offers a retirement income as a way to attract and retain workers. The workers give years of service (and for many, a lifetime), and the company takes care of them with steady, predictable retirement income. However, three factors worked against this being viable:

  1. Pensions were seen/promised as “guaranteed” income, and a key part of an employee’s compensation. The employee need not think about it – he or she simply gets “xyz” a month at retirement, usually based on years of service or as a percentage of their top income years.
  2. However, in reality, pension funds are little more than investment vehicles. Little thought was given to market volatility. In essence, it’s almost impossible to “predict” future income based on growth, much less “guarantee” it. See how the last downturn affected your 401k and stock account? Well, it’s not like pension funds were magically shielded.
  3. People are living longer as a whole. More and more people reach their 80’s and beyond. When pensions were “promised” the assumption was retirement at 65, with less than ten years of payout on average.

So faced with the above, companies have two choices: cut pension payments, or go under. That’s prettymuch it. And while cutting payments isn’t popular, the people most affected by it aren’t working anymore, making it the lesser of two poor choices. This doesn’t make it right or wrong, or justify it. Retirees will say “you promised” and grumble about the CEO’s compensation, but if the dollars aren’t there, the dollars aren’t there.

There’s no tidy wrap up, blame, finger pointing, or lesson learned here. The simple truth is this: if you are counting on a pension, you need to be aware that the amount you are counting on may not be there.