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The 3 Ways Most Government Workers and Retirees “Plan” for LTC

by smeneshi - Nov 08, 2014

1) Do Nothing

One thing you can do to prepare for the chance of needing expensive long-term care is simply nothing. Using this strategy, you’re just hoping for the best. Either you’re hoping that you or your spouse won’t need care for much more than a few months, or it’s sad to say, you’re hoping to have a relatively quick death.

If you do pass away quickly, the only bright spot is your family is saved the pain of watching you suffer through a long illness or injury.

If you take the “Do-Nothing” approach, realize that you risk the chance of making your family suffer way more than they need to – emotionally, physically, and financially. If you choose to do nothing, and you wind up needing care for more than a year or so, there’s also a good chance that you will be spending some or all of your last days in a Medicaid facility if your assets get drained because of the high cost of long-term care.

Keep in mind that whether you choose to do nothing about reality or put it off, either way DOING NOTHING IS A PLAN and is no different than what someone who outright refuses to buy car or liability insurance does.

 2) Put it on a ‘To-Do’ list

The problem a lot of times with a “to-do” list is that a lot of the things on that list wind up not getting done.  Especially when it comes to something like planning for potential long-term care needs.  Even though a majority of Americans over the age of 65 will need long-term care at some point, putting together a solid plan to deal with the risk too often gets put on a ‘to-do’ list and quickly gets overlooked.

3) Save for LTC Expenses

Saving into a 457 plan is the most popular way that government workers plan to pay for potential LTC costs.  The reality though is a 457 plan is a retirement plan, NOT a long-term care expense plan.

It’s very likely that you’re already self-insuring unintentionally by contributing to your 457 deferred comp plan. There’s the real possibility that by the time you reach retirement, you’ll have saved $200,000-$300,000 or more in your 457 plan. There’s also a good chance that your home mortgage is or will be paid off, meaning if you aren’t already in great shape financially, you probably will be. If you’ve done a good job of saving and investing in your 457 plan, and through a little bit of research you’ve learned that the average annual cost of a private nursing-home room in 2013 was $94,1703 then you know that if you only spend two years in a nursing home, you’ll be spending through close to $200,000 of your retirement nest egg.


Realistically, this approach could work and many of you are taking this route already whether you know it or not. You may even subconsciously be thinking that your 457 plan is your long-term care backup plan. The good part is at least you have some type of plan in place because

long-term illness doesn’t wait around until you’ve saved enough money or have bought an insurance policy to strike.


If you only spent around $200,000 of your $300,000-$400,000 in savings on long-term care, then you and your spouse could still be okay financially.  You won’t be as comfortable financially, but you should be able to get by. After all, with things like your pension, Social Security, and little to no debt, there is some room for a heavy financial hit.

HOWEVER, you have to be very careful here because the cracks in the foundation of your strategy show when you need more than a couple years of expensive care, and what can happen is your $300,000-$400,000 deferred comp plan or other savings can dry up in a hurry.


Another thing you have to ask yourself is if your spouse also gets sick or injured and needs long-term care for a year or two, how much of your 457 plan or other savings are you comfortable spending just on these expenses? Are you willing to say goodbye to your deferred comp plan that you’ve sacrificed so much to save into? What if you want to pass your 457 plan or other accounts onto your kids or grandkids? Just one extended illness over a year or two means you and the kids could be wiped out in a hurry.


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