In a previous blog post, we shared a comprehensive checklist for families to use when helping a loved one transition to an assisted living community. That post included sections pointing out critical financial planning and legal aspects of the transition.
Veramazo is dedicated to helping families and their cherished elders ensure that the golden years shine as bright as the years preceding them. So it wasn’t enough for us to simply provide a few bullet points.
In this two-part series, we’ll deep dive into the details of financial and legal planning for both families and their beloved elderly family members, all of whom are embarking on a deeply human life transition.
Pt. 1 | Financial Planning for Senior Care
For The Families
The financial aspects of senior care can be complex, but they are critical for ensuring that your loved one receives the best care without jeopardizing their financial stability—or the family’s. Here’s a detailed look at what families should consider when planning for this transition.
1. Assessing Current Financial Status
Income and Assets: Start by gathering a comprehensive picture of their loved one’s income and assets. This includes pensions, retirement accounts (such as 401(k)s and IRAs), Social Security benefits, savings, property, and any other sources of income.
Debts and Liabilities: It’s also essential to understand the financial obligations. Are there outstanding loans, credit card debt, mortgages, or medical bills? Knowing this will help families assess what can be realistically spent on long-term care.
Monthly Expenses: Identify the current monthly expenses and consider how these may change when their loved one transitions into a care facility. For example, utility bills may decrease, but long-term care costs will increase.
2. Understanding the Cost of Senior Care
The cost of elderly care can vary widely depending on the type of care being provided. Below are four types of long-term care facilities and their respective cost considerations.
In-Home Care: Hiring in-home aides can be less expensive than a nursing home, but costs vary widely depending on the hours of care needed. Part-time help may cost $1,200 – $2,500 per week, while 24-hour care can run into $10,000-$15,000.
Assisted Living Facilities: These facilities generally cost between $5,500 and $9,000 per month for the apartment, and depending on the level of care and location, the cost increases. Services such as meals, housekeeping, and personal assistance are typically included.
Nursing Homes: Nursing home costs are among the highest for seniors needing extensive medical care, ranging from $13,000 to over $18,000 per month.
Memory Care: Specialized care for dementia or Alzheimer’s patients typically adds 20% to 30% to the base cost of a nursing home or assisted living facility.
3. Exploring Payment Options
Families often struggle with how to pay for senior care, especially since Medicare only covers a limited portion of long-term care. Here are the primary options to consider:
Long-Term Care Insurance: If your loved one has a long-term care insurance policy, it may cover part or all of their care. Review the policy carefully to understand what is covered and for how long. Some policies cover in-home care, while others focus on nursing homes or assisted living facilities.
Medicare and Medicaid: Medicare typically does not cover long-term care, though it may cover short stays in skilled nursing facilities after a hospital stay. Medicaid, on the other hand, can cover long-term care, but it has strict eligibility requirements based on income and assets. Families may need to spend down assets or work with an elder law attorney to qualify.
Veterans Benefits: Veterans and their spouses may be eligible for VA benefits to help cover long-term care costs. The Aid and Attendance benefit, for example, can be used for in-home care, assisted living, or nursing home care.
Personal Savings and Investments: Families may need to use personal savings or sell assets, such as a home, to cover care costs. This should be approached with care, as liquidating assets may impact Medicaid eligibility or reduce the inheritance left for heirs.
4. Managing Ongoing Finances
Once care has been arranged, it is important for families to stay vigilant and manage their continuing financial responsibilities.
Automatic Payments and Bills: Set up automatic payments for the senior’s recurring bills to ensure that their financial obligations are consistently met, even if they are unable to actively manage their finances on a daily basis.
Budgeting for Extra Costs: As health needs evolve, the expenses associated with care may also rise. Therefore, it is crucial to allocate a buffer in the budget to account for potential cost escalations.
Tax Considerations: When it comes to long-term care expenses, it’s important to note that some of these costs may be eligible for tax deductions. It’s highly recommended to collaborate with a qualified tax professional to ensure that you are maximizing any available deductions, particularly those related to medical care and home modifications designed to support aging in place.
5. Family Contributions
It’s crucial for families to come together and have open, compassionate conversations about how they can financially support their loved one’s care. Take the time to discuss and agree upon specific amounts that each family member can or is willing to contribute. By openly addressing financial contributions with empathy and understanding, you can prevent potential conflicts and ensure that everyone is aligned regarding the financial aspects of care.
For The Seniors
For seniors transitioning to care, financial planning is crucial for maintaining peace of mind, ensuring you receive the care you need, and making sure your financial resources last. Here’s what seniors need to consider:
1. Assessing Your Financial Situation
Take Stock of Your Assets: Gather a complete list of your financial resources, including savings accounts, investments, real estate, and retirement accounts. Knowing exactly what you have will help you make informed decisions about care.
Review Your Income: Assess your sources of income, such as Social Security, pensions, annuities, or income from investments. Calculate your monthly and annual income to understand what you can afford.
2. Understanding the Cost of Care
The cost of senior care varies depending on the type of care and where you live:
In-Home Care: Many seniors prefer to age in place, and hiring part-time or full-time caregivers can help you stay at home. The costs range depending on the level of care and hours required.
Assisted Living: If you need help with daily activities like dressing, bathing, or cooking, an assisted living facility might be a good option. Costs range from $3,000 to $7,000 per month, depending on location and level of care.
Nursing Home: Nursing homes provide 24-hour medical care and personal assistance. These facilities are the most expensive, costing between $6,000 and $10,000 or more each month.
3. Exploring Financial Resources
Long-Term Care Insurance: If you have long-term care insurance, check what’s covered, how long the benefits last, and the conditions for accessing these benefits.
Medicare and Medicaid: Medicare covers some short-term care in specific circumstances, but it won’t cover long-term care. Medicaid can help, but you must meet strict financial eligibility requirements, which may involve reducing your assets.
Veterans Benefits: If you’re a veteran or a spouse of one, you may be eligible for VA benefits that help cover long-term care costs. Check with the VA to understand your eligibility and benefits.
4. Selling Assets
Some seniors opt to sell their homes or other assets to help pay for care. If you’re considering selling your home, talk to a financial advisor or attorney to ensure that it’s the best decision for your situation.
5. Managing Your Day-to-Day Finances
As you transition to senior care, you may not want to handle daily financial tasks. Consider setting up automatic bill payments or designating a trusted family member to help you manage your finances.
Financial Power of Attorney: This legal document allows a trusted person to manage your finances if you become unable to do so. It’s important to have this in place before any health decline to avoid complications later.
6. Planning for Future Care Needs
Even if you’re in good health now, your care needs may change over time. It’s a good idea to leave room in your budget for potential future expenses, such as increased caregiving hours or moving to a more intensive care facility.
By taking control of your financial planning early, you can ensure that your transition to senior care is smooth and that you remain financially secure for the rest of your life.
In Summary
When it comes to planning for senior care, it’s important to approach it with understanding and compassion. It involves taking the time to truly understand your loved one’s financial situation, including their income, assets, debts, and monthly expenses so that you can determine the best care options within their means. It’s crucial for families to explore the costs of different care options, from in-home care to nursing homes, and to consider payment options such as long-term care insurance, Medicaid, veterans benefits, and personal savings.
Ongoing financial management, including setting up automatic payments, considering tax implications, and possibly receiving family contributions, is also important. Seniors should be encouraged to assess their assets and income, explore care costs, and understand their financial resources while also managing their daily finances and planning for their future care needs. By engaging in compassionate financial planning, you can help ensure a smoother transition into senior care, preserving both their financial stability and their peace of mind.
Join us next month as we deep-dive into legal planning and highlight key aspects for families and seniors that will help ensure all the i’s are crossed, and t’s are crossed.
Veramazo’s Additional Clinical Advocacy Service helps families understand these policies and make the best-informed decisions for their loved ones. If you need assistance with any policies or financial planning services or are in need of other resources, please schedule a consultation with us today.
At Veramazo, we provide personalized and curated advisory services to ensure your loved ones feel at home in a community that meets their unique needs and treats them with the dignity they deserve.
Navigating Financial Issues in Long-Term Care Planning: Key Considerations for Families
Niraj Chhabra, CFP®, MBA, CLTC, CRPC®
Financial Planner with SideBar Advisors
sidebaradvisors.com
Planning for long-term care presents a range of financial challenges that can significantly affect both the person receiving care and their loved ones. Here are the critical financial considerations to keep in mind as you plan for long-term care.
1. Home Equity: A Significant Asset for Retirees
For many retirees, their home represents the majority of their wealth. However, they are often reluctant to use this asset to cover long-term care expenses because they wish to leave it to their spouse or children. While tapping into home equity through options like reverse mortgages or selling the property can provide essential funds, these decisions can be emotionally charged. Families must weigh the emotional significance of the home against the financial need to cover long-term care costs.
2. Retirement Accounts: Beware of Tax and Medicare Implications
Retirement accounts, such as IRAs or 401(k)s, are another primary source of wealth for retirees, but liquidating these accounts comes with serious consequences. Withdrawals are taxed as income, and large distributions can push the retiree into a higher tax bracket, rapidly depleting the funds. This not only reduces the amount available for care but also diminishes income for a surviving spouse.
Additionally, large IRA distributions can trigger surcharges for Medicare Part B and Part D premiums, known as Income-Related Monthly Adjustment Amounts (IRMAA). These surcharges can significantly increase healthcare costs, making strategic planning around retirement account withdrawals crucial for managing both taxes and healthcare expenses.
3. Long-Term Care Insurance: Plan in Advance
Long-term care insurance can help cover the cost of care, but it must be purchased well in advance of when it’s needed. Waiting too long to buy insurance can result in higher premiums or disqualification due to health conditions. For people in their 40s and 50s, the cost of premiums can be particularly challenging to manage alongside other financial priorities, such as raising a family or saving for retirement. Despite these challenges, securing long-term care insurance early can provide peace of mind and help prevent future financial strain.
4. Gender Differences: Women Bear a Greater Burden
Long-term care disproportionately affects women, not only because they tend to live longer but also because they are more likely to need care for extended periods. On average, women live five years longer than men, and they make up the majority of residents in assisted living facilities and nursing homes. Studies show that long-term care residents are mostly female, with 67 women for every 33 men in long-term care facilities.1 Given that women also often serve as caregivers for others before they need care themselves, this double burden makes it especially important for women to plan carefully for their financial security in later years.
5. The High Cost of Family Caregiving
Family caregivers often bear significant out-of-pocket costs, with annual expenses averaging nearly $7,000.2 These costs don’t include the lost income caregivers face when they reduce work hours or leave the workforce entirely to care for loved ones. The financial strain can also affect the caregiver’s long-term financial security by reducing their ability to save for retirement. Families should factor caregiving costs into their planning and consider professional care options to reduce the burden on family members.
6. Medicaid vs. Private Pay: Different Liquidation Strategies
The approach to covering long-term care costs depends on whether the family intends to qualify for Medicaid or pay privately. Medicaid has strict income and asset limits, and qualification may require spending down assets. The liquidation of assets needs to be carefully timed, as Medicaid has a five-year look-back period that can penalize improper transfers. In contrast, families planning to private pay will need to focus on minimizing taxes, especially when withdrawing from retirement accounts, to preserve as much wealth as possible for the surviving spouse and heirs.
Conclusion
Long-term care planning is a complex process that requires balancing financial and emotional priorities. For most retirees, wealth is concentrated in their home and retirement accounts, but using these assets to cover care can have significant tax and Medicare consequences. Moreover, women, who live longer and are more likely to reside in assisted living or nursing facilities, face a greater financial burden and need longer-term solutions. With careful planning and early action, families can make informed decisions to protect their assets and ensure loved ones receive the care they need.
1Samuels, C. (2023, September 13). Long-Term Care Statistics (2022): Current & Future Demand. Www.aplaceformom.com. https://www.aplaceformom.com/senior-living-data/articles/long-term-care-statistics
2The Cost of Caregiving – Homethrive. (2023, December). Homethrive. https://homethrive.com/the-costs-of-caregiving/
This article is provided for informational and educational purposes only. It is not intended and should not be construed as individualized advice or recommendation of any kind. Where specific advice is necessary or appropriate, individuals should contact their professional tax, legal, and investment advisors or other professionals regarding their circumstances and needs. We are not affiliated with Veramazo Elder Care Concierge and publishing this article should not be construed as an endorsement by either party.
Investment Advisory Services are offered through Mariner Platform Solutions (MPS), a SEC Registered Investment Adviser. Sidebar Advisors and MPS are not affiliated entities.