A $350,000 account could be exhausted in just a few years if both members of a couple required semi-private rooms in skilled nursing facilities. However, that’s not necessarily what would happen. For one thing, most people don’t run up nursing home bills of that magnitude. Also, you may be able to get government assistance to pay nursing home costs while keeping your IRA intact. Long-term care insurance and other financial tools offer other ways to pay a nursing home without emptying your savings. If you are concerned about paying for long-term care, consider discussing it with a financial advisor.
Long-term care costs unquestionably are eye-catching. In 2021, the Genworth Financial Cost of Care Survey pegged the average daily cost of a semi-private room in a skilled nursing facility at over $94,000 per year. At that rate, if both members of a couple required a similar level of care, $350,000 in IRAs would only cover about two years’ worth of costs.
That doesn’t mean your retirement account will meet a similar fate. According to the federal Administration on Aging, about 35% of people spend any time in a nursing home, and the average stay is about a year. People are more likely to use other types of long-term care, such as assisted living and in-home aides, that cost less.
The government also steps in. Medicare, the national healthcare program available to most people over age 65, covers up to 100 days of nursing home care in most cases. If you need more time in long-term care, Medicaid, the federal-state healthcare program for people of limited financial means, will cover nursing home stays of indefinite length.
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You must have very limited financial resources in order to qualify for Medicaid. States oversee the program and rules vary, but in some you can only have about $2,000 in assets other than your home. The income limits vary but are also strict.
Some states don’t include IRAs when determining Medicaid eligibility, so if you live in one of these your IRA is safe. However, most do include IRAs as assets and in these you may have to spend nearly all the money in your retirement fund before you Medicaid will pay for nursing home care.
If you have too many assets, you may be able to satisfy Medicaid’s means test by gifting assets to a family member. However, you generally have to do this at least five years before you apply for Medicaid. If you don’t observe the five-year lookback period, Medicaid may include 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 decline enough to meet the Medicaid means test.