According to the Administration on Aging, a person turning age 65 today has a 70% chance of needing some form of long-term care in their lifetime. While most people prefer to ignore the subject of planning care -– be it for themselves or a loved one –- the truth is that most people will need it.
Of course, long-term care can take various forms, from in-home assistance to nursing homes. But no matter the approach, long-term care can be expensive. And contrary to popular belief, Medicare does not cover most long-term care services, which leaves individuals to figure out how to fund them.
If you delay planning for long-term care, you may struggle with adequate financing. The earlier you begin financial planning for long-term care, the better you can understand the options available to you and your loved ones.
Here’s what you need to know to make the best decisions for you and your family.
How Much Does Long-Term Care Cost?
Long-term care costs vary greatly depending on location. In 2021, the average assisted living community cost $6,819 per month in Boston and $4,975 per month in Portland. Your first step is to determine what you might expect to pay in your area.
To do this, contact local communities and ask about their rates. The insurer Genworth has a helpful tool that helps you roughly estimate costs for assisted living, nursing homes and home care services based on your zip code. While senior care community rates vary based on the level of amenities and services provided, finding local averages can help you begin the process of planning your anticipated monthly expenses.
Average Costs of Long-Term Care
In 2021, the national average monthly costs for senior care communities were:
- Home Care: $4,957
- Home Health Care: $5,148
- Assisted Living: $4,500
- Nursing Home (Semi-Private Room): $7,908
- Nursing Home: (Private Room): $9,034
Keep in mind that in addition to location, the costs of long-term care vary by the level of care required. For example, assisted living rates generally include the cost of a room, meals, and utilities, while assistance with dressing, toileting, laundry and other services often require extra fees.
What Goes Into the Costs?
As you begin looking into different communities, you may notice that the variety of potential costs is, unfortunately, more complicated than simple monthly rates. Generally, a monthly rate includes the cost of a room meals and utilities. When touring a community or speaking to representatives, be sure to inquire about the following costs:
- Community fees: Often charged by independent living communities, these fees cover the costs of moving into an apartment and provide residents with access to shared amenities like gyms, pools and clubhouses.
- Care fees: While many communities include care as part of the rent, others often charge additional fees tied to the type of care a person needs. For example, if a person in assisted living needs help with eating or toileting, the monthly rate would likely increase. However, when even higher levels of assistance are needed – like for those in memory care – the cost of increased care is often inclusive in the rent.
- Service fees: In addition to care, many senior care communities offer additional services like laundry, cable and transportation. While some communities include services like these in the base rate, others offer them a la carte and require additional payment.
How to Pay for Long-Term Care
While most people know to plan for retirement, few consider saving for long-term care until it’s too late. Rather than wait until care is needed, you should consider long-term care as part of your greater retirement plan.
However, this does not mean you need to save hundreds of thousands of dollars to pay for care. Instead, you should begin planning how you might pay for care by weighing your available financial resources and consider what kind of lifestyle you would like to have.
Unless you have a comprehensive long-term care insurance policy that covers all of your long-term care costs, you may need to dip into your savings. By understanding what you can afford each month, you can begin determining how additional insurance and financing options can fill in any gaps.
A 2019 study found that over half of older adults mistakenly believed Medicare would pay for their long-term care. However, original Medicare (Parts A and B) only covers medical-related services such as medication, preventive care, outpatient care and some wellness programs.
If these services happen to be administered in a nursing home or assisted living setting, then Medicare may cover some costs. However, it’s important to remember that most of the care performed in these communities falls under the umbrella of custodial care — non-medical care that helps with activities of daily living.
Unlike Medicare, which functions similarly to health insurance, Medicaid covers health-related costs for those with low-incomes. It can often be used for most types of long-term care — both medical and nonmedical. While the way in which Medicaid is administered will vary by state, income and asset thresholds determine your ability to qualify for this aid.
Medicaid can be used to cover long-term care needs such as:
- Assisted living communities
- Nursing homes
- Hospital services not covered by Medicare
- Home health services
- Personal care services
To find out if you qualify for Medicaid and if you can use this program to pay for long-term care, you may want to reach out to your state’s Medicaid agency. Additionally, some states offer Medicaid Home and Community-Based Services (HCBS) waivers that allow people to pay for care administered in their homes.
Long-Term Care Insurance
As the name implies, long-term care insurance is a type of policy that covers some or all of your long-term care costs. This usually includes assisted living, nursing homes, adult day centers, memory care and home care.
With this type of insurance, it’s best to purchase a policy while you’re younger — ideally in your fifties. The older you get, the more your monthly premiums cost, and long-term care insurance providers may even deny you coverage due to poor health or advanced age.
Another risk to look out for is rising premiums. Long-term care insurance providers can raise premiums as a policyholder ages, so try to find a policy with a rate that you can lock in for an extended period of time.
Life Insurance with Long-Term Care Riders
A primary drawback of standalone long-term care insurance policies is that you might never actually need the entailed benefits. You may spend years paying into a policy that gives you nothing in return. Life insurance policies with long-term care riders provide benefits in the event that you never need long-term care services.
This type of hybrid policy functions similarly to life insurance, where you pay a monthly premium and your beneficiaries receive a death benefit upon your passing. The primary difference is that with a long-term care rider, you can access a portion of the allotted death benefit to pay for long-term care expenses while you are still alive. However, death benefits from this type of policy are often lower than the maximum benefit amounts of standalone long-term care policies.
For disabled or aging veterans, the U.S. Department of Veterans Affairs (VA) may cover some or all long-term care costs. To qualify for these programs, you must be signed up for VA healthcare, and your care provider must conclude that long-term care services are necessary for ongoing treatment or personal care. Options include:
- Community Living Centers facilities are nursing homes operated by the VA that offer care exclusively to veterans and, in some cases, their families.
- Community Nursing Homes: Rather than being operated by the VA, these homes are contracted by the VA and offer care to veterans.
- State Veterans Homes: These care centers are independently operated but certified by the VA and may be an option for veterans to receive full-time care.
- VA Aid and Attendance Program: this special program provides monthly payments added to the amount of a monthly VA pension for qualified veterans and survivors. It is specifically developed for those who need help with daily activities. Stipends received through this program may assist with long-term care needs.
To learn more about the long-term care benefits and assistance available to veterans, check out the U.S Department of Veteran Affairs website.
Selling Your Home
For many people, one of the primary sources of funding for a long-term care plan can come from the sale of their home. Although the real estate market can change from year to year, acquiring an appraisal early on may help you get a better idea of how much money you can expect to gain from the sale of your home.
Conversely, you may consider renting your home to provide a reliable stream of passive income for years to come. While this method requires extra legwork to manage the property for renters, it allows you to keep and continue building equity in your home.
Talk to a Financial Planner
If you currently work with a trusted financial advisor, you should speak to them as you plan your long-term care. In most cases, people use a variety of means to pay for care, and a financial advisor can help you develop a multifaceted approach.
If you don’t have a financial planner, you can reach out to your local Area Agency on Aging. Often, these organizations have experts who can refer you to both care and financial resources. To find your local Area Agency on Aging, you can type in your zip code on this website.
The Importance of Planning Early
It’s important to consider the financial implications when planning long-term care. In the same way that no two people require the same type of care, there is no one-size-fits-all approach to financing it.
When beginning to plan long-term care for yourself or a loved one, you may want to ask yourself the following questions:
- Ideally, what will my golden years look like?
- Do you wish to live in an independent living community, remain at home or transition to another environment? Will a partner be joining you?
- What might you be able to pay for long-term care?
- Consider SSI, retirement, pensions, savings and any tangible assets.
- What additional financial resources are available to you?
- Consider long-term care insurance, life insurance, Medicaid, VA benefits and any other programs available to you.
While getting older is inevitable, the way age impacts your health can often be unpredictable. This can make it impossible to know exactly what type of care you’ll need five, ten or twenty years from now. With a bit of diligence and proper planning, you can assemble the pieces needed to create a strategy that works for both you and your family