The National Council on Aging (NCOA) estimates that 45% of older adults lack the income to cover their needs. (1) With the average cost of assisted living being $5,190 per month, (2) many seniors are struggling and relying on their families for support.
Imagine David, 55, trying to find care for his father, Frank, 83. Although Frank was living independently until now, his health has worsened in recent months and his doctor says he will likely need specialized care, which will cost him about $7,500 a month.
On paper, Frank is in a strong financial position to overcome life’s obstacles. He receives $4,000 a month from Social Security and a pension, and owns a tidy little ranch valued at $300,000 with no debt. But even in this “good” position, there is a $3,500 shortfall to cover that could quickly snowball.
David loves his father and wants him to receive the best care imaginable, but he’s not sure how that’s possible. Here are our tips for dealing with the costs of assisted living and senior care.
After doing the math, the most obvious strategy is to sell Frank’s house. Money from the sale of a home is the most realistic way to cover the monthly shortfall for years to come.
However, that doesn’t mean that depositing $300,000 in a checking account is the end of the story.
For added security, David might consider investing the $300,000 in a lump sum annuity that immediately begins generating a monthly income. Plans like a single premium immediate annuity (SPIA) could provide more consistent cash flow for the rest of Frank’s life.
If Frank has other retirement accounts (for example, an IRA), it is also possible to convert some or all of these funds to an immediate annuity.
But let’s say Frank isn’t ready to sell right now. There is another way to tap into home equity while still living at home through a reverse mortgage loan. While it’s not for everyone, a reverse mortgage literally buys you time before making a permanent move.
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Then there’s Medicaid, which may not be as out of reach as David thinks.
Medicaid rules vary by state, but some assets, such as property, do not count toward eligibility. The trick is to understand how to legally “spend” assets, using funds to pay legitimate care expenses until you qualify for coverage.
An elder law attorney could help protect Frank’s assets while staying compliant in this case.
After considering all of these options, let’s say that David still feels emotionally compelled to dip into his own savings. Is that wrong?
While this is understandable from an emotional perspective, it is often not a smart financial decision.
Supporting a parent doesn’t always mean paying their bills, especially if it puts you in debt. Instead, David should focus on other options besides managing logistics, helping with paperwork, and ensuring the quality of care remains high.
This hypothetical situation highlights a tough but common experience for modern American families: Even when you’ve done everything right financially, aging can cost more than anticipated.
Furthermore, long-term care cannot be an afterthought as longevity becomes the norm. The average life expectancy in the US is now 78.4 years (3) and many seniors plan to live 30 years in retirement.
Setting up a health savings account (HSA) or purchasing long-term care insurance when you’re in your 50s or 60s could unlock much-needed liquidity during crucial life events. At a minimum, calculating the numbers ahead of time can provide clarity about the options available in the event of a major health-related transition.
Conversations about aging and finances can be delicate, but it’s better to discuss them in good health than to wait for a full-blown crisis to hit.
For adult children, set realistic and firm financial limits before contributing to their parents’ care. It may seem cold, but helping parents doesn’t mean sacrificing your own financial security or your own retirement savings.
And if managing your finances feels too overwhelming, it may be time to consult a financial advisor to gain insight.
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National Council on Aging (NCOA) (1); A place for mom (2); Peterson-KFF (3).
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
