Seven out of every 10 seniors will need to enter a long-term care facility at some point in their life. As the percentage of population over 65 grows, the number of senior living facilities offering varying levels of assistance is also on the rise.
On average, assisted living facilities charge upwards of 130 per day to provide housing and around the clock nursing and care. Over-55 communities may start at $1,000 per month for rent or mortgage payment. This usually excludes down payments and monthly service fees, which can total more than $100,000.
Most people enter a senior living facility in their mid to late 70s, nearly a decade after first entering retirement. For this reason, the cost of long-term care and assisted living must be calculated into an individual’s retirement planning. Planning must even be robust for couples, who will need to plan for surviving spouses.
Generally, seniors and their loved ones can tap into several financing options to pay for senior living care costs.
Retirement Nest Egg
The majority of senior housing costs are covered by private funds. Many retirees have recurring income from annuities or private pensions. They may also hold savings in tax-deferred retirement accounts. While the average median retirement savings amounts to around $200,000, medical costs and long-term care expenses may easily dwarf that figure.
In addition to Social Security payments that are distributed to citizens and residents with qualifying work histories, the U.S. government also provides additional monetary support for specific groups of seniors. Medicaid is a means-tested health insurance program designed for lower-income Americans.
More than 30 states offer Medicaid waivers that can be applied to the costs of care provided in an assisted living facility. Understanding Medicaid billing and reimbursements can be complex, so seniors and their family members should discuss applicable benefits with the assisted living facility.
Former servicemembers and their spouses may qualify for the Aid and Assistance benefit managed by the Department of Veterans Affairs. This benefit defrays the costs of assisted living by covering certain services. Veterans classified as homebound or bedridden can qualify for higher payouts. While the maximum aid amount varies by situation, veterans, their spouses, and surviving spouses can receive between $1,000 and $3,200 per month.
Home Equity Conversion Mortgage
Also known as a federally-backed reverse mortgage, Home Equity Conversion Mortgages are a popular way to pay for assisted living costs if one spouse is able to remain in the home. Homeowners with significant equity in their primary residence can apply for an HECM if they are at least 62 years old.
The loan provider may disburse a lump sum or monthly payout. Unlike a traditional mortgage, there are no recurring payments. Instead, the balance must be paid in full after the loan holder moves from the home or passes away. Generally, the loan is settled by selling the house.
HECMs do have some upfront costs and are not appropriate for every senior. In some cases, it may be preferable to sell a home rather than take out a loan against the equity.
Some types of life insurance can actually cover expenses incurred during the policyholder’s lifetime. For example, whole life insurance products enable policyholders to accumulate a cash value that can be tapped into when necessary. Policies worth $100,000 or more may qualify for a living benefits program, which are loans equivalent to up to half of the death benefit.
Another way to extract the value of a life insurance policy is to sell the death benefit to a settlement company. This option is advised for seniors who will enter long-term care in the near future.
Long-term care insurance policies explicitly cover any expenses associated with care and treatment for a chronic condition. As the premiums are much higher for older seniors, individuals should consider taking out a policy before they are 60 years old. However, older seniors can still qualify for long-term care insurance, and may pay a lump sum with savings, a loan, or money from an HECM.
While many family members willingly contribute to an older relative’s senior living costs, they are not obligated to do so if the senior is covered by Medicaid. However, in many states, adult children have a filial responsibility for unpaid assisted living costs accumulated by their parents. Family members who sign as responsible parties during the admission process may also be liable for outstanding bills.
If family members are not in a financial position to cover their loved ones expenses, they can help the senior understand their financing options, which can include taking out a loan or applying for government benefits. If feasible, families can try to reduce long-term care costs by opting for in-home caregiving, or paying for modifications to senior’s current residence.