A $350,000 bill could be exhausted in a few years if both members of a couple needed semi-private rooms in skilled nursing facilities. However, that’s not necessarily what would happen. For starters, most people don’t incur nursing home bills of that size. You may also be able to get government assistance to pay for nursing home costs while keeping your IRA intact. Long-term care insurance and other financial instruments offer other ways to pay for a nursing home without draining your savings. If you’re concerned about paying for long-term care, consider discussing it with a financial advisor.
Long-term care costs are undoubtedly glaring. In 2021, the Genworth Financial Cost of Care Survey estimated the average daily cost of a semi-private room in a skilled nursing facility at more than $94,000 per year. At that rate, if both members of a couple need a similar level of care, $350,000 in IRAs would only cover about two years of costs.
That doesn’t mean your retirement account will suffer a similar fate. According to the Federal Administration on Aging, about 35% of people spend some time in a nursing home, and the average stay is about a year. People are more likely to use other forms of long-term care, such as assisted living and home help, which cost less.
The government also intervenes. Medicare, the national health care program available to most people over 65, covers up to 100 days of nursing home care in most cases. If you need more time for long-term care, Medicaid, the federal-state health care program for people with limited financial resources, covers an indefinite nursing home stay.
Match up to three financial advisors for free to discuss your costs, risks and retirement options.
You must have very limited financial resources to qualify for Medicaid. States oversee the program and the rules vary, but in some cases you can only have about $2,000 in assets other than your home. The income limits vary, but are also strict.
Some states do not include IRAs when determining Medicaid eligibility, so if you live in one of these states, your IRA is safe. However, most include IRAs as assets and in these you may have to spend almost all the money in your retirement fund before Medicaid starts paying for nursing home care.
If you have too many assets, you may be able to meet Medicaid’s means test by gifting assets to a family member. However, you generally need to do this for at least five years before applying for Medicaid. If you do not observe the five-year lookback period, Medicaid may consider the transferred assets when determining your eligibility. If that happens, you may have to spend the money in your IRA to pay for nursing home costs until your assets drop enough to meet the Medicaid income test.
