Financial Planner for Retirement
Suzanne Wolfson, CFP® is the founder of For Retired Only™, a fee-based financial planning...read more
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Financial Planning for Retirement
How to Pay for Long-term Care without Breaking the Bank
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Meeting increased elder care costs requires making hard decisions and taking a judicious and strategic look at your financial options. These decisions are often fraught with conflicting emotional concerns. I recommend you incorporate a careful and objective cost-benefit analysis of all the variables. Be aware of the potential consequences of every decision you make—not just the financial consequences, but the personal ones. Being knowledgeable about the issues and pitfalls can help you avoid undesirable surprises that cannot be rectified (e.g., significant taxation or leaving your heirs without an inheritance you had planned to leave them).
I Thought Medicare Covered Everything!
Thorough financial planning at this stage of life cannot be emphasized enough. Elder care commonly requires a significant portion of life savings because few insurance policies will cover the costs. Many people expect that their care will be automatically be covered by Medicare or other government programs. If you don’t qualify, then you must confront the inevitable: “now what?” Heirs may also feel conflicted by the loss of future inheritance and are sometimes blinded by this in their decision-making process.
Exponential increases in health care costs frequently require a change in the management of income. It can require the sale of assets as well. In my financial practice, I commonly see caregivers merely dealing with the present situation. Unfortunately, as sound as these decisions might be today, they won’t help in the future. Understanding taxation, estate implications, and being knowledgeable about costs and risks is essential.
Options Galore: Where Do I Begin?
There are several options to help elderly individuals and their caregivers. Ask yourself two questions. Where will your loved one receive the care? What are his or her needs? Then take stock of your options:
- Have your parent remain at home and hire homecare workers
- Move your parent into the home of the primary caregiver
- Have the primary caregiver move into your parent’s home
- Move your parent into a retirement home, assisted living, continuing care or nursing home, depending on his or her care needs
Create a list of pros and cons for each option, but know that a lack of experience in this arena can result in broad-based ramifications to all involved. I highly recommend having the list reviewed by an objective professional like a geriatric care manager, who can teach you about the issues you might not be familiar with. Once you have decided what your loved one’s current needs are, you must evaluate the financial details and determine how to proceed. Be conservative yet realistic in your projections; consider worse-case scenarios. Keep the following list handy when you reach this step.
- What will the care and associated fees cost now?
- How might the needs of your loved one evolve? What would be the financial impact?
- How will you pay for the care? What are the financial resources available and what is their income potential?
- What are the financial alternatives? Do you have anything to sell, such as property?
- Make a list of assets. What are the costs and penalties associated with selling or accessing these assets?
Ask For Help Now—It’ll Help You Save Later.
I strongly suggest that you contact a financial planner before implementing any significant financial strategies. A financial professional will work with you to maximize the benefits of your financial resources. What seems like the most costly option may turn out to be the cheapest and most desirable solution in the long run. These “band-aid strategies” can have positive results, but they are usually short-lived, and can force you to into a corner where you face more costly, disruptive and adverse situations. A few practical considerations:
- Who will be managing the finances? Is that person “qualified” in terms of financial experience, knowledge and relationship to the senior and/or others involved?
- Establish the desires and abilities of the elderly person. What are his or her legal rights?
- What option is the most workable for all involved? Account for the location where your loved one will be receiving care, the daily responsibilities of all caregivers, and personalities (especially potential conflicts that may arise).
So I’ve Assessed My Loved One’s Needs...Now What?
After assessing the financial picture and all alternatives, it’s often necessary to reposition assets to create the additional income. Here’s what you should ask yourself—and your financial planner—if this is what you face.
- Which assets should you tap first, and when?
- What should be changed, shifted or sold? What shouldn’t be sold?
- What will be net gained by possible liquidations?
- Are there distributions alternatives such as pensions, annuities or life insurance?
- Can these distributions be heightened or increased?
- What are the investment market realities? How is the timing, and are there opportunities for liquidation?
- Should you sell the home or rent it? What are your expectations?
- Should you consider a reverse mortgage, equity line or property management?
- Can your elderly loved one get financial assistance his or her spouse, caregiver or heirs?
- Does your plan account for any dependents?
- How can the sale of home be structured to minimize the capital gains hit and increase the income flow? What are the risks?
- Are there hidden costs that affect the net income received?
- How does the present estate plan impact the choices and vice versa?
Making prudent financial decisions to facilitate paying for long-term care can be a road filled with potholes. Making informed decisions smoothes the road and makes reaching the destination more fulfilling. Don’t be afraid to ask for help!
Posted in Advanced Planning, Financial Planning for Retirement: Suzanne Wolfson, Planning for Long Term Care
Terrific post! I’ll be linking to this from my blog. Your site got a lot of interest when I mentioned it in my ezine - for good reason. You have a ton of good information.
Carol Bradley Bursack
[…] If you’ve got kids and parents on your plate, you are a member of The Sandwich Generation. A financial planner who specializes in retirement has written a helpful article on elder care, starting with options for living arrangements: […]
My mother is fairly healthy (she’s 68), but is having a dip in the amount of things she can handle on her own. I want to help, but she is a proud woman and I do not want to interfere with her life and independence, but I know I need to take greater financial control. I went online and found your article and you make a lot of good points so thanks for the information. Also I hadn’t heard of a geriatric care manager until now. How do you go about finding one?
Your best bet is to start your search by looking up members of NAPGCM, the National Association of Professional Geriatric Care Managers in your area. The NAPGCM sets the standards for the industry and as such their database is one of the first places to begin your search. For a brief overview of services that a GCM can provide click here.
I AM HAVING DIFFICULTY FINDING A JOB THAT ALSO ACCOMMODATES MY CARING FOR MY WIFE WITH HER M.S. IS THERE A GOVERNMENT PROGRAM THAT WOULD SUPPLEMENT MY INCOME SO I’M NOT FORCED TO PLACE HER IN A NURSING HOME ?