Have you thought about whether you might need long-term care as you get older? The Department of Health and Human Services has determined that 70% of adults who survive to age 65 will need long-term services and support before they die and that 48% of those people will receive some paid care over their lifetime. So, it makes sense to think about how you’ll pay for these services if you fall into the 48% group.
Depending on the level of care needed, long-term care (LTC) can easily amount to $50,000-$100,000 per year. Whether you choose to age in place or move into a retirement setting, there are a number of sources of funds available for this expense. These include the items listed below. I’ve included a brief comment for each of them, but will focus the remainder of the article on using home equity to cover these costs.
- Long-term Care Insurance. Long-term care insurance is a specific type of insurance policy designed to cover the costs of long-term care services. Since their introduction, coverage has decreased and costs have risen. If you have a LTC policy, great! If not, one of the other options may be best.
- Probably few of you qualify for Medicaid, but it’s a joint federal and state program that provides health coverage to eligible low-income individuals and families. It also covers long-term care services for those who meet specific financial and care requirements. Eligibility and benefits vary from state to state.
- Medicare is a federal health insurance program primarily for people aged 65 and older and some younger individuals with disabilities. While Medicare does not typically cover long-term custodial care, it may cover certain short-term skilled nursing care or home health services under specific circumstances.
- Personal Savings & Assets. Some people pay for long-term care using their personal savings, investments, or other assets. This can include retirement savings, stocks, real estate, and other valuable possessions. It’s essential to plan ahead and budget for potential long-term care expenses to avoid depleting savings rapidly.
- Veterans Benefits. Veterans and their spouses may be eligible for certain long-term care benefits through the U.S. Department of Veterans Affairs (VA). These benefits may include Aid and Attendance or Housebound allowances for veterans who need assistance with daily living activities.
- Home Equity. Please see the information below.
- Family Support. Some families choose to support their loved ones financially by pooling resources or contributing to long-term care expenses. This may involve adult children providing financial assistance to their aging parents.
- Long-term Care Annuities. Long-term care annuities are financial products that allow you to convert a lump sum payment into a stream of income that can be used to cover long-term care costs. A previous blog has described some concerns about annuities.
- Health Savings Accounts. This option was discussed in a previous blog.
Okay, let’s drill down a bit on home equity. As you know, this is the value of your home less anything you still owe on it. This asset can be used to fund LTC in a number of ways. Here are some of the more common approaches.
- Renting Your Home. This approach can allow you to keep your home and provide a revenue stream – if your home stays rented, isn’t damaged too much by renters and doesn’t have many high-maintenance items (like a new roof). Additionally, many older people simply can’t manage a rental, so some of the rent money must go to a management company. Considering everything, this is probably not the best option for older people.
- Selling Your Home. This really isn’t an option if you plan to age in place for a while. However, if you plan to permanently move into a retirement home or a nursing home, this can be a good option. It provides a significant amount of money which can be used for any initial relocation expenses and the balance can be invested to fund your monthly LTC expenses. Note that it may take a while to sell your home and there are short-term loans that can help with that. Also, a family discussion may be in order if any of your kids have wanted to own the home at some point. Finally, if going onto Medicaid is part of your plan, converting your home to cash will probably make you ineligible.
- Reverse Mortgage. A reverse mortgage is a loan available to homeowners aged 62 or older, allowing them to convert part of their home equity into cash. The homeowner either receives a lump sum, monthly payments, or a line of credit, which can be used to pay for long-term care expenses. The loan is repaid when the homeowner sells the house, moves out of it, or passes away. Withdrawals are tax free. It’s important to notice that at least one spouse must continue living in the home or else the loan must be repaid.
- Home Equity Line of Credit (HELOC). A HELOC is a revolving line of credit secured by the value of your home. It works similarly to a credit card, and you can borrow against it as needed to cover long-term care costs. Interest is charged only on the amount borrowed. You must make monthly payments on the amount you’ve borrowed. Failure to do so can result in foreclosure. You do not have to live in your home for a HELOC.
- Home Equity Loan. Also known as a second mortgage, a home equity loan provides a lump sum of money based on the equity in your home. The loan is repaid in installments over time, and the interest rates are typically fixed.
- Sale-Leaseback Agreement. In this arrangement, you sell your home to a buyer (often a company specializing in senior housing) and, in return, receive a lump sum or regular payments. You then lease the property from the buyer and continue to live in your home while using the proceeds to pay for long-term care.
As you can see, there are a number of options for paying for long-term healthcare. If you would like to see which one makes the most sense for you, or discuss any other financial matter, we can set up a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice