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
Fund Unexpected Elder Care Costs with Your Personal Resources
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When shifting circumstances bring unexpected elder care costs, they also bring the urgency of having to make short and long-term financial decisions. It is at this point that one must confront the reality of the exorbitant costs of care for the chronically ill and elderly.
In 2007, the annual cost of long-term care in the US averaged $77,000. While many people are woefully unprepared to handle these high costs, many others have serious misconceptions about the real costs of long-term care and how much they will have to pay. Consider these surprising facts:
- Medicare only covers 8% of assisted living and in-home care costs. Medicare, Medicare Part D and Medicare supplemental plans will only cover short-term and medically required costs.
- The average cost of nursing home care is approximately $300 per day.
- In 2007, in-home care costs increased by 12%.
Formulating a Financial Strategy
Paying for long-term care is a significant expense. You’ll want to consider all of your options before committing to a plan. To start with, ask yourself the following:
- What is the present income stream?
- How much will the expenses be, considering all alternative solutions?
- How can you bridge the discrepancy between present income and future costs?
- What financial preservation strategies are available?
Once you’ve answered these questions, it’s time to identify, analyze and evaluate your financial resources. The majority of elder care costs are provided and paid for by the aging individuals and their families; therefore, I’d like to focus briefly on how to unlock these private resources. I advise my clients to consider the following resources.
Insurance: Long-term Care, Life & Annuities
- What are the benefits and how can you obtain them?
- What is the cost of tapping these benefits?
Assets: Investments, Savings & Retirement Funds
- What is the value of these assets, both individually and bundled?
- Consider the safety and liquidity of all assets.
- Can they facilitate income to meet expenses?
- What are the true net financial returns or benefits of alternative solutions?
- Consider all associated costs, such as taxation impact, cost of sale and acquisition fees.
- How are the assets legally held (e.g., trusts)? Understand the specific terms.
Real Estate
- Are there income production possibilities that don’t presently exist?
- Consider the capital gains taxation on a possible sale. Does it make sense to sell?
Financing: Real Estate Equity Loans & Reverse Mortgages
- Understand the true costs, including all associated fees. Compare APRs (annual percentage rates).
- What are the alternatives to meet the needs of “aging in place”?
Personal Property
- Assess the financial value of personal property such as jewelry, art, collectibles and antiques.
- Consider the personal value of these items before deciding what you want to do with them.
To produce more income, you can convert investments to generate more cash flow or decide which assets to sell, or spend down, to meet the new financial demands. In making these decisions, don’t forget to consider all costs involved, and determine the true net benefits and/or returns of any new choices made with the proceeds. Do a thorough cost-benefit analysis or ask a professional with elder care financial expertise, experience, and legal fiduciary obligation, to help you do it. You might also want to talk with an elder care attorney, geriatric care manager or financial planner.
When making these crucial care and financial decisions, avoid band-aid solutions. Denying future circumstances can be financially devastating down the road if you don’t consider them now. Determining the best solutions requires comprehensive, objective planning, to ensure needs are met, resources are not exhausted, and all cost-effective strategies are utilized.
One last point: there are also strategies that can be built around incorporating the resources of the family (i.e., time and money) to take advantage of a variety of available options, such as sharing the caregiving duties and/or costs. But don’t forget the bottom line: these financial decisions should be based on the needs of the individual who need care!
Posted in Financial Planning for Retirement: Suzanne Wolfson, Paying for Long Term Care, Planning for Long Term Care, Reverse Mortgages, Weighing your Housing Options
Suzanne,
Great article. Thank you for mentioning the importance of evaluating the “true costs” of reverse mortgages and seeking alternatives to financing aging in place.
Reverse mortgages are becoming the panacea to aging in place needs and frankly it is an easy solution though for some it may be a temporary one.
As an elder care and aging in place consultant I work to help seniors and the people who care for them pursue and evaluate a variety of options to age in place and manage elderly health care challenges.
Thanks for offering good financial information with a holistic approach.
All the best,
Pamela
Lead Elder Care Strategist
You mentioned: “these financial decisions should be based on the needs of the individual who need care!”
That’s true… however, the purpose of advance planning for those financial concerns ALSO includes planning (for example, via Long Term Care insurance) to mitigate the otherwise devastating consequences of that cost of care upon the surviving spouse. Just as purchasing life insurance was a matter of fulfilling your responsibilities when you’re young, buying LTC insurance is a similarly responsible action to take in your later years (or, preferably, even before then, when it’s less expensive!)
Great article, though. I enjoyed it!
- Tim
Co-Founder and President
A Servant’s Heart Senior Care
Pamela and Tim, thank you for your comments. In regards to what Tim said I would like to clarify my point. I am a huge proponent of advanced planning. (Please see my other articles in this column.) However I am also well aware that advanced planning is also frequently difficult to convince people to do. A lack of advanced planning creates consequences that are devastating to all. In this posting and in the sentence which you reference I am merely reminding people that when they are forced to make unpleasant financial decisions that they should always consider the needs of the aging individuals and their dependents (i.e., the spouse)…first and foremost!