Is there financial planning for senior living?

As you provide care for your aging parent or family member, you may discover the cost of in-home assistance is growing along with their needs, or perhaps their needs are increasingly straining your mental and emotional well-being. Either way, you’re considering senior living as a possible alternative. However, cost is an important factor. Whether or not you or your parent can afford senior living is a question you cannot avoid, but you shouldn’t let assumptions about cost cause you to jump to any conclusions. Thoughtful and careful planning may take a bit of time, energy and discussion with your parent, but it may be worth the investment.

QUESTION: Can you afford a senior living community?

ANSWER: The average cost of assisted living or senior living can vary depending on your desired location, what level of care is needed and what type of community is desired.

Modifying your parent’s existing home for safety and paying for in-home assistance, utilities, mortgage, transportation and other necessities adds up quickly. You may find that senior living actually saves you and your parent money because it covers many living expenses in a single monthly rate.

QUESTION: How do you pay for assisted living? Is there a list of resources?

ANSWER: Early research and planning are key parts of preparation. While many people prefer to not contemplate or discuss this until much later in life, planning early could potentially save you money in the long run.

Below, you will find ideas, resources and tools that can help you cover the cost of assisted living.

  1. Traditional resources
  2. Veterans benefits
  3. Loans
  4. Life insurance policies
  5. Long-term care benefit plans
  6. Real estate

Working with a financial professional can help you identify the best course of action for your situation, which may include a combination of options.

Traditional resource

There are many ways to pay for senior living, but the most common method is to use private funds, such as savings, investments and selling high-value items such as antiques, automobiles and furniture. Pensions, Social Security and retirement accounts (401ks and IRAs) can also help pay for senior living.

Veterans benefits

Is your parent a veteran? The Department of Veterans Affairs has established the Aid and Attendance Pension for veterans and their surviving spouses. This program can help fund senior living. To qualify, a veteran must have:

  • At least 90 days of active military service with at least one day of service during a period of national conflict, with honorable discharge, or be their single surviving spouse
  • A medical diagnosis requiring assistance with two or more activities of daily living
  • Insufficient monthly income to purchase required care
  • Limited liquid assets, such as savings and retirement funds

If this may be a viable option to help cover the expense of senior living, please contact your local Veterans Affairs office for more information.

Loans

Your parent may consider tapping into their home’s equity as a possible resource for additional income; it may also be tax-deductible. A home equity line of credit is similar to a home equity loan; however, the line of credit allows you to borrow from an available pool of money as needed and only pay interest on the money borrowed. A reverse mortgage works in some situations, though it requires at least one homeowner to continue living in the house.

Personal loans may be a good short-term option, although interest isn’t tax-deductible and rates can be high, so they generally aren’t suggested. Talk to a trusted financial advisor to explore if this option is potentially useful for your family.

Life insurance policies

There are several ways your parent can use their current life insurance policy to free up cash that can be used to help fund their living needs. Here are a few things to consider:

Your parent can take a loan from their current life insurance policy, with the understanding that it will reduce their policy benefits accordingly

A life insurance policy can be surrendered to receive a cash payout

Learn if their policy features an accelerated death benefit rider, which may give your parent access to a portion of the death benefit if they become terminally ill

Your parent can take a life settlement, where he or she can sell their existing life insurance policy to a third-party company that typically pays more than the surrender value

Your parent may be able to convert their life insurance policy to a long-term care benefit plan

Before making a decision, talk to your trusted health insurance professional or financial advisor.

Long-term care benefit plans

Long-term care insurance covers individuals who need care or assistance with several activities of daily living, such as bathing and getting dressed. Coverage of expenses begins after a designated waiting period.

If your parent needs assisted living, nursing home care or in-home care services and does not have long-term care insurance or the funds to cover associated costs – and they do not qualify for Medicaid – they may be able to convert their existing life insurance policy to a long-term care benefit plan.

This plan covers assisted living and long-term care expenses at the time services are needed, without requiring your parent to spend down their financial assets to qualify for Medicaid coverage.

For more information on converting a life insurance policy into a long-term care plan, contact your trusted insurance professional or financial advisor.

Real estate

While listing and selling your parent’s home through a real estate agent is a good option, many families capitalize on real estate investments without giving up their homes. Your parent may consider selling their home to a family member to keep it in the family, or they may want to rent their home to a family member until everyone is ready to make a long-term decision.

It’s important to keep in mind that the sale of a property could also include a tax payment resulting from appreciating over time. Be sure to consult with a financial advisor or certified public accountant to fully understand the tax implications of selling a property.

These options are simply a starting point for you and your parent. Explore all possible options with a trusted tax professional or financial advisor to determine which options work best for you and your unique financial situation.

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