An expense nobody wants to (but everybody should) considerAccording to AARP, two-thirds of people over 65 will need long-term care toward the end of their lifetime. We all think (or hope) it won’t be us, but with odds like these, it makes sense for nearly everyone to have some kind of financial plan in place.
So, where does an individual or the family of a loved one start when health begins to decline and activities of daily living (called ADL in long-term-care speak) become more difficult?
“The whole issue, really and truly, is that there is not one vehicle” says Jill Poser, director of life-care planning for Florida-based Advocare. Poser stresses that the key to financial planning for long-term care is to get the total picture of someone’s financial landscape, especially when there’s a couple with different levels of need. How do you sustain one and do right by the other? Says Poser, “There’s a strategy to this.”
The websites longtermcare.gov, run by the U.S. Department of Health and Human Services, eldercare.gov and your local governmental department on aging offer a wealth of information that will point you in the right direction, but ultimately you may want to consult both elder care experts and a trusted financial advisor.
Justin Fulton, a client strategist at Virgina-based Signature Family Wealth Advisors suggests some common resources that many people utilize when they are looking to fund long-term care.
Long-term Care Insurance. Of all the available options, this one requires the most advance planning, because you need to be enrolled earlier in life. Generally a policy protects against a need for what is termed “custodial care.” This might include in-home services, or more likely, long-term assisted living for anyone needing help with ADLs, such as eating, bathing, dressing, transferring from bed to chair and so on. It could also include skilled nursing.
With long-term care insurance you need to be aware of the types of benefits that are paid out.
• Does it cover home and assisted living, independent living, nursing home?
• Will the payout cover the cost?
• If you cancel the policy before you need it, do you lose all your money?
• Is there a minimum you have to pay in before you qualify for benefits?
• How specifically do you qualify for benefits?
• How strong is the insurance company? You may not need it for 30 years, so you want them to be still solvent.
It’s also important to note that you have to be in good health to qualify for long-term care insurance. As Fulton puts it, “It’s like car insurance. You can’t apply for it after you’ve had an accident.” So the best-case scenario: buy it when you’re healthy.
Reverse Mortgage. This is a way to provide income by converting part of the equity in your home into cash. In exchange for a percentage of the equity, the lender sends you payments over time. The loan is repaid when you sell your home or pass away, or when your home is no longer your primary residence. Reverse mortgages generally have high upfront costs and a higher interest rate than standard mortgages.
Says Fulton, “Generally the people who use reverse mortgages are people who have no savings, are looking for something to supplement their income, and the only thing they’ve got left is a house.” Fulton adds that these people are generally older—in their 70s—and can’t survive on social security alone.
Veterans Assistance Benefits. There are different types of VA benefits available to veterans and their surviving spouses. One set is available to vets with service-related injuries, and another set, called Aid and Attendance, is provided to any vet or surviving spouse who has a disability plus low income. The place to start researching VA benefit qualification is with the Veterans Administration.
Another option that should not be overlooked is to examine what resources can be found amongst family members. It is not uncommon for children of parents who are considering assisted living to have saved money in order to help pay for that care, especially if the parents have funded major financial events in their children’s lives.
With each financial component to paying for long-term care there are many details and questions that need to be uncovered and answered. There are available resources but if you’re wise, you’ll start the conversation and exploration early.
“We are a very youth-based culture,” says Poser. “People don’t really want to think about getting old. You have to be ready and want to have the conversation. That’s where I can provide the most solutions. But many people don’t want to have ‘the talk.’ I find it rare that people have planned. I find it actually unusual.”