For many older Americans, the cost of senior living seems prohibitive. Perhaps they would like to move into an assisted living community to receive the assistance they require for continued quality of life, for instance, but they worry that they won’t be able to afford it.
The cost makes proper planning and the knowledge of available resources essential. A variety of options are available to older adults, but to take advantage of them, they and their loved ones must know about them. This column discussions some of the payment options of which community owners and operators can make residents and potential residents aware.
Using life insurance to pay for long-term care is one of the best ways for many older adults to obtain the funds they need. Many life insurance policies come with an accelerated death benefits rider that will allow them to use the money associated with that policy for end-of-life care.
Older adults must read their policies carefully, particularly as they near the end of their lives and have an increased need of senior care and services.
LTC insurance is specifically designed to provide care that falls outside the realm of traditional medical care. It covers the cost of services such as adult day care, nursing home care, community care and hospice care. Many of these policies seem prohibitively expensive, especially for individuals who wait until retirement to purchase them, so up-front planning is critical to using LTC insurance effectively.
LTC insurance cannot be canceled by the company due to an individual’s ill health, so acquiring it well before retirement typically is recommended. But not all LTC insurance policies are alike, so older adults must be sure to read all the fine print to ensure that a plan fits their needs.
Annuities provide a regular stream of income that’s dedicated solely toward paying for senior living care and similar expenses. For many older adults, it’s the best way to guarantee that their senior living services and care will be paid for into the future, for as long as they need it. Various different types of annuities exist and, generally, the holder of the annuity can select to pay a single payment or a series of payments to the insurance company.
This type of income does have a downside, however: it prevents the funds set aside for senior living services and care from being used for any other purpose, which can be problematic if other concerns arise.
When other sources of funding run out, Medicaid is designed to stand in the gap and help cover the costs of senior living. Understanding the asset and income restrictions of Medicaid can help many individuals plan for the day when their existing funds will run dry, enabling them to efficiently prepare for the need for government assistance. For example, if someone begins with $40,000 in assets and lives in a senior living community with a private payment contract for 10 months at $4,000 per month, then Medicaid generally will kick in after this period and help cover the remaining expenses for the rest of the older adult’s life.
Medicaid does have several financial restrictions concerning the assets and income that an older adult can possess to qualify, however, so the help of a long-term care Medicaid expert often is recommended.
Many individuals aren’t aware of the benefits that they receive as a veteran or the spouse of a veteran. Although these benefits may vary, it’s important to contact a knowledgeable individual at the VA to fully understand the benefits that are available. Veterans benefits, for example Aid & Attendance Housebound benefits, also come with a higher asset and income limit than many other programs.
For older adults who have planned ahead, private payment may be one of the easiest options for paying for long-term care. Private payment allows an individual to draw from their savings or income to pay for the services and care they need. The cost of senior living services also can be covered by family members and loved ones.
When funds run out, the other options offered to older adults must be carefully considered. When choosing private payment, it can help to have an estimate of the length of time that funds are expected to last.
A reverse mortgage uses an existing asset — an older adult’s home — to help pay for the cost of goods and services they may need as they near the ends of their lives. The loan is based on the cost of the house and generally doesn’t have to be repaid until the last resident of the house leaves it or until it is sold.
This option is ideal for many older adults who have plenty of equity in their homes but who may not be able to access the funds they need to prepare for long-term care.
When private funds first run out, many families struggle to decide what to do next. Perhaps a house, a car or other assets can be sold but, unfortunately, the money just isn’t available yet. In these cases, a bridge loan, which is intended for short-term use, can be a great way to quickly acquire care or to continue it until the house sells or other funds become available.
Understanding the variety of ways in which senior living can be paid for is critical to helping ensure quality of life for older adults as they age. Providing this information to families and helping them delve more deeply into the available information will help make the decision of how to finance senior services and care easier. Ultimately, it’s important to help make older adults’ retirement years as golden as possible, and assisting older adults and their families in the planning stage is a critical part of that process.
Ben Mandelbaum is chief operating officer of LTC Consulting Services and Senior Planning Services, with offices in New Jersey, New York, Pennsylvania and Connecticut.