Is Your 401(k) a Long-Term Health Care Solution?

Don't depend on your 401(k) as a solution for paying for your future long-term health care. Markets go up and down without notice. You will see changes in your health, body, and mind, often without notice. Plan before you retire.

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Is Your 401(k) a Long-Term Health Care Solution?
6 Min Read January 18th, 2016 Updated:February 2nd, 2021
James Kelly

LTC News author focusing on long-term care and aging.

Markets have been mixed since we entered 2021. Fluctuation in the markets isn't new, you've seen this before. However, if you are contributing to your 401k plan (or your personal IRA or SEP), you know retirement planning and investing is a long-term process. If you are properly diversified and you contribute money regularly, your retirement savings should be fine. However, we wonder ... but ...

What is the "but"? One of the most significant risks to your current or future retirement savings is the cost of extended long-term health care. 

Imagine being older, needing extended care, and needing large amounts of unbudgeted money to pay for care. If you have to sell off 401(k) money when the market is down, that would have a significant impact on your retirement, your spouse's lifestyle, and the elimination of legacy, and even a burden on loved ones.

The Markets are Not Your Ideal Long-Term Care Solution

Some people ignore this concern with two thoughts that are both wrong. One is the government, or your health insurance will pay for long-term health care, or they will never need the care at all.

Your experience changes in your health, body, and mind as you get older. The risk of needing help with daily activities increases as we get older. The cost of long-term health care is expensive and increases every year.

The LTC NEWS Cost of Care Calculator says facility care can run over $100,000 a year. In-home care costs less unless you need 24/7 care at home. The cost does vary depending on where you live. Find the current and future costs by clicking here.

Longevity Means Greater Risk of Long-Term Health Care

Experts suggest the advances in medical science are at play here. We live longer and survive health events and accidents more than ever before. In short, it is hard to die! Even if you think you are healthy, you may still require help with daily living activities just because you are old. Don't "forget" your chances of memory issues increase with age as well. Plus, health issues come up unexpectedly at any time.

These costs of extended health care will usually not be covered by your health insurance, including Medicare. These programs pay a limited amount of "skilled care" and pay nothing for custodial care, which is the type of care most people end up needing. 

The Medicaid program will pay for custodial care only if you have little or no savings. What this means is the responsibility for your future long-term health care is yours.

“The role of public programs such as Medicareand Medicaid in financing long-term services and supports is commonly misunderstood. While Medicaid is the largest payer of long-term services and supports, roughly a third of pre-retirees incorrectly assume Medicarepays the most,” the White House report says.

LTC Insurance Protects Your 401(k)

Protecting your future retirement savings is something you need to start planning for while you have good health. Long-Term Care Insurance is an easy and affordable way to get this accomplished.

Forty-five states participate in the Partnership Program. This program provides dollar-for-dollar asset protection if you have a qualified LTC policy. The Long-Term Care Partnership Program is a collaboration between the state government and insurance companies. Under this partnership, applicants who purchase qualifying Long-Term Care Insurance policies can access Medicaid coverage while retaining assets they would normally be required to spend on their long-term care. This is referred to as dollar-for-dollar asset protection or asset disregard.

“We don’t see a reason why anyone would get an LTC policy that’s not in a state partnership program. States developed these programs because much of the cost of Long-Term Care falls on them. If you’re poor, Medicaid picks up the tab. States spend billions of dollars on care for citizens who have no money. The partnership concept is a good idea for helping solve this dilemma.”

Ric Edelman, a nationally known independent financial advisor.

Since many of us try to save money, contribute to our 401(k)’s, and want to have a successful retirement, the last thing you want to is lose a majority of your hard-earned assets when you can easily avoid it. 

Those people who don’t plan for long-term health care can end up in a state-run government plan like Medicaid. The quality of care may be less than what you would want when you need future extended care.

"We are facing a tsunami of care needs for aging Americans." 

"There is already a huge financial, emotional and physical strain on individuals and families who must pay for or provide care for aging spouses and parents."  

 Jesse Slome, director of the American Association for Long-Term Care Insurance (AALTCI) 

Total national spending for Long-Term Care services exceeds $300 billion annually according to AALTCI, with Medicaid covering just over half of total expenditures.

"Concern about financial security during retirement resulted in the creation of 401(k) and IRA retirement savings vehicles and today 50 million Americans participate in one of these plans." "Now we need to address Long-Term Care."

Jesse Slome 

Preparing Family and FInances Eases Stress

Long-Term Care Insurance benefits many American families by providing tax-free benefits that help people stay in their own homes. Most every survey suggests in-home care is the type of long-term care most people will want when the time comes. 

In 2020 the top insurance companies paid over $11.6 Billion in benefits from Long-Term Care Insurance plans. Experts suggest this number will increase as more people who have purchased these policies start receiving benefits. 

The best time to obtain coverage is before you retire. Ideally, this would be in your 40s or 50s when you still enjoy good health. The AALTCI suggests seeking the help of a qualified and experienced Long-Term Care Insurance specialist. 

Seek Help When Planning Longevity

Specialists will work with the major companies that offer these policies. There are several types of plans that are available. Keep in mind premiums vary over 100% between insurance companies for the same coverage. A specialist will match you with the best coverage at the best value.

Find a trusted and experienced specialist by clicking here.

You can't always depend on the markets as they go up and down, often with little warning. The changes in your health, body, and mind also change, often before you can do anything about it. Family caregivers face many physical and emotional problems when placed in the role of caregiver.

Make getting older easier for the people you love. A little planning will give everyone in your family, including yourself, peace-of-mind.

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About the Author

An LTC News author focusing on long-term care and aging.

LTC News Contributor James Kelly

James Kelly

Contributor since August 21st, 2017

Editor's Note

Affordable Long-Term Care Insurance will give help you avoid dependence on your family in addition to protecting your income and assets. You will have access to your choice of quality care, including in-home care, which most people prefer. 

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This comprehensive guide is an outstanding first-read -  The Ultimate Long-Term Care Guide. Be sure to take notes so you can ask the appropriate questions when you speak with a qualified and trusted Long-Term Care Insurance specialist.

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