5 Ways to Make Long-Term Care More Affordable

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A long life can be both a blessing and a financial burden. As our health inevitably declines over time, medical expenses can skyrocket. What follows are several ideas for keeping later-life health care costs under control.

1. Save for health care like you save for retirement

It's common for people to save for their retirement. Far less common is the habit of saving for future health care costs. And yet, a growing number of people have access to a triple tax-advantaged way to do just that — a health savings account. If you have a high-deductible health insurance policy, that's you. (See also: How an HSA Could Help Your Retirement)

Money you contribute to such an account is tax-deductible, and assuming it's ultimately used for health care expenses, earnings and withdrawals are tax-free. If you don't spend all the money you contribute each year, the balance can be carried over from year to year. With some account providers enabling you to invest the money, you could build up quite a balance.

That money could be used to help pay health care costs in your later years, including some expenses for long-term care, whether provided in your home or a nursing home. The money also could be used to pay the premiums for Medicare Parts A, B, C, and D, and at least a portion of long-term care insurance (LTCI) premiums.

2. Don't over-save

Headlines about later life health care costs can strike fear into your heart and wallet. According to a recent Fidelity Benefits Consulting study, a 65-year-old couple retiring in 2017 will need $275,000 to cover their health care costs throughout retirement — up from $260,000 for couples retiring in 2016. And that's just for normal older age health care; it doesn't include the cost of long-term care.

But let's take a look past the headlines. Assuming a 20-year retirement, $275,000 works out to $1,146 per month. While people's health care costs vary widely, $1,146 is less than some families pay right now for high-deductible health insurance premiums plus monthly contributions to a health savings account.

Instead of relying on headlines about average health care costs, estimate your later-life health care costs to make sure you aren't obsessively over-saving out of fear. You can go a long way toward that by getting some Medicare estimates. Pairing an Original Medicare plan with a Medigap policy or choosing a Medicare Advantage plan can take away a lot of uncertainty regarding out-of-pocket costs for deductibles and copays.

3. Purchase some long-term care coverage

One of the main reasons people end up in nursing homes is dementia, and one of the primary risk factors for getting dementia is a family history. If your parents or grandparents had it, it may be wise for you to pick up at least some long-term care insurance coverage.

Just keep in mind that buying a long-term care insurance policy is not an all or nothing proposition. You could opt for enough coverage to take the sting out of long-term care costs, while still keeping your premiums manageable.

Choosing a longer elimination period (how many days you have to be in a nursing home before benefits begin) will lower the cost of the policy. Other ways to save include opting for a lower daily benefit, a lower maximum benefit period (compare the costs of one, three, and five years as opposed to lifetime coverage), and doing so without inflation protection. (See also: Is Long Term Care Insurance Worth It?)

4. Buy a deferred annuity

The risk of getting Alzheimer's disease goes up with age. According to the Alzheimer's Association, 3 percent of people between ages 65 and 74 have the disease, whereas 32 percent of those over age 85 have it.

One way to manage the financial risk of an age-related disease such as Alzheimer's is to purchase an advanced-life deferred annuity. With this product, you pay a relatively small lump sum premium now in order to secure a guaranteed monthly benefit down the road. For example, a 65-year-old may be able to pay $10,000 now in order to receive $575 per month beginning at age 80. By comparison, if a 65-year-old wanted that much per month right now via an immediate annuity, he or she may have to pay $100,000.

5. Move closer to adult children

One more idea for keeping long-term care costs down is to live near or with your adult children during your retirement, assuming they are in a position (and are willing) to help you. Living close to a caring relative can lessen your dependence on — and the cost of — outside help for long-term care.

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