One of the biggest factors to consider when you or a loved one requires long-term care is how to pay for it. Long-term care is unfortunately quite costly and can easily use up retirement savings, especially if it is needed for a long period of time.
According to Stephen Wright, a Certified Financial Planner® with MCF Advisors, “The best way to fund senior care depends on each individual situation. The most common ways to pay for senior care are either from your personal income sources (Social Security and/or pension income) savings, long-term care insurance, or Medicaid. Many individuals utilize a combination of these sources to pay for care.”
While this subject should be discussed with a financial expert before making a decision, the following is a brief description of each of these options.
If you have paid Social Security taxes and fulfilled the requirements, you should be eligible for Social Security when you retire. If you don’t qualify for your own benefits for whatever reason and are widowed, you may be able to use your spouse’s benefits.
Pension plans are becoming few and far between, but if you are fortunate enough to be collecting a pension, you can use these funds to help pay for long-term care. With the average monthly cost for assisted living in Cincinnati around $3,500, and a private room in a skilled nursing care facility around $7,400, Social Security or pension income may not be enough to cover the entire expense, which is why people often end up using more than one income source.
With the reduction in pensions being given by employers, most employees are funding their own retirements through 401(k) plans, IRAs, or other savings and investment plans. Because this is your own money, after you reach a certain age, you can use this money for whatever you want, including long-term care. If you have money saved in a health savings account (HSA), long-term care is a qualified medical expense and can be paid for out of your account.
Long-Term Care Insurance
Long-term care insurance is a much-debated and complicated topic. Like life insurance, which has a main purpose of covering expenses when you pass, long-term care insurance is designed to cover the cost of in-home care, assisted living, or skilled nursing care. If for whatever reason you do not end up needing long-term care, the policy remains unused and the premiums you paid are not recoverable. However, if you do require long-term care, having this type of insurance can keep you from spending all of your retirement income to pay for it.
To help eliminate this use-it-or-lose-it stipulation, long-term care coverage can be combined with life insurance in the form of a rider. Depending on the amount of coverage to choose, a certain percentage of that coverage can go toward long-term care costs each month. The money not used for long-term care, whether you use some or none of it, is still available to your life insurance beneficiaries when you pass.
As we mentioned before, long-term care insurance is very complex and the options seem limitless, so it is best to speak to a professional when determining what, if any, type of long-term care insurance is right for you.
Most people view Medicaid as a last resort when it comes to long-term care, and with good reason. To have Medicaid cover your costs, you essentially have to prove you do not have the means to pay for it yourself, and the government decides how much of your income it will take and how much you can keep. If you have a spouse who counts on your income and is still able to live independently, they will be able to keep a portion of it, but the rest will go to the government.
That being said, many qualified long-term care facilities accept Medicaid, and if you have exhausted your other resources, it can certainly provide the care you need.
While these are the four most common ways to pay for long-term care, there are others, including trusts, annuities, and reverse mortgages. Before you find yourself in a situation where this type of care is required for a loved one or yourself, take the time to review your options so you aren’t stuck making a last-minute decision.