The Facts of LIFE (Living Independently For Elders)
Navigating elder care and elder care finances in the U.S. can be a challenge even for the most well-prepared households. So what, exactly, is involved in senior financial planning? What steps can you take now to help you be prepared for the future?
Here we discuss a few of the options that can allow elders to maintain their independence while still accessing the services and support they need.
Private Funds and Out-of-Pocket Costs
Most people wind up using private funds to pay the majority of their senior living costs—at least until these funds are exhausted and Medicaid may kick in. These funds can come from retirement savings, investments, inheritance funds, savings accounts, and home equity.
Private funds have the advantage of providing the most flexibility; you can use these funds to pay for an assisted living or independent living apartment, hire a nurse or aide to provide part-time care at your home, or even pay to construct an extra wing or suite on your home (or a relative's home) to allow for in-home care.
Long-Term Care (LTC) Insurance
If you're concerned about your ability to pay for long-term nursing care when the time comes, LTC insurance can help ease your mind. This insurance covers a portion (or all) of the cost of long-term care for a specified period of time. Having an active LTC policy can also allow you to choose from among multiple care options, while those who are on Medicaid or who have chosen to privately pay may not be eligible at as many different facilities.
Not all LTC insurance policies are created equally, however. It's important to carefully read and understand the terms of your policy to see exactly what it covers and what it excludes. For example, some policies may cover care only up to a certain number of months; others may provide a flat dollar amount of benefits, which means choosing the lowest-cost option will help these funds last longer. Your financial professional can provide you with more information to help you evaluate whether one of these policies is right for you.
Whole Life Insurance
You may be familiar with term life insurance policies, which pay out only if the policyholder passes away while the policy remains in effect. But whole life insurance policies are different; along with the payout they provide if the policyholder dies, they also have a cash value that can be withdrawn and spent on elder care expenses. In other cases, you may be able to convert a currently active life insurance policy to a pre-funded account that will allow you to access the cash value.
Reverse Mortgages and Home Equity
Another option to help fund elder care involves tapping your home equity, either through a home equity loan or line of credit (HEL or HELOC) or a reverse mortgage. Each of these options has its own pros and cons, and if you're unable to cover your living expenses or meet your financial obligations without these home equity funds, an outright sale may be a better choice for the longer term. Again, it's important to discuss these options with your financial professional to ensure you're taking all the benefits and potential drawbacks into account.