You don’t want to go broke in retirement. Despite all your preparation, however, you might discover that your retirement is going to cost more than you planned. First and foremost, you need to become aware of the reasons that the budget you have in mind could be smaller than it needs to be.
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1. You Don’t Have a Long-Term Care Plan
You could quickly run out of money in retirement if you need long-term care but didn’t have a plan to pay for it. More than half of adults turning 65 today will need long-term care and about one in seven will need care for more than five years, according to the Department of Health and Human Services.
If you receive care in an assisted living facility or nursing home, you’ll have to shell out big bucks. The average annual cost of care in an assisted living facility was $45,000 in 2017, according to the Genworth Cost of Care Survey. The annual cost of a private room in a nursing home was about $97,450.
“Even the wealthiest people are at risk if they have a lot of long-term care expenses,” said Dave Littell, retirement income program co-director at The American College.
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What to Do
You can use several strategies to be financially prepared for long-term care, Littell said. Options include getting a long-term-care insurance policy or hybrid life insurance policy that will pay out if you have a long-term-care event. Another option is a longevity annuity, Littell said.
This is an insurance product that requires a lump-sum investment and will provide a steady stream of retirement income. But, you have to wait several years or until a certain age to start receiving your payout. As a result, “you can’t time it exactly with a long-term care need,” Littell said. Ideally, you should meet with a financial planner who specializes in long-term care planning to help you devise a strategy, he said.