Several years ago, when I was helping care for my parents toward the end of their lives, they were adamant they wanted to stay in their home for as long as possible. I quickly realized we would need lots of help to honor their wishes. Finding quality and reliable in-homelong-term carewas expensive, but fortunately, they had the resources to pay for it.
Witnessing how important it was to my parents to stay in their home, I encourage clients to plan for long-term care expenses because many of us are living longer and need specialized care more often. It is estimated thathalf of all Americansage 65 and older will require long-term facility care.
Today, long-term care costs have continued to rise. According to Genworth’s2023 Cost of Care Survey, the average annual cost for a private room in a nursing home is $116,800. Fortunately, the options to help pay for these expenses have also expanded.The earlier you start planning, the more control you have over your future, empowering you to make informed decisions and feel more secure. Following are some options to help pay for these costs:
Cash reserves
Similar to saving for college costs, you can estimate future costs and what you need to save each month. Although self-funding is possible, it is prohibitive. You would need significant savings to cover potential long-term care costs.
Long-term care insurance
This is a more favorable option than self-funding.Long-term care insuranceprovides financial security for long-term care costs. Similar to car or home insurance, you pay a premium regularly. While there's no return if you don't use the insurance, the peace of mind it offerscan outweigh the cost.
Hybrid cash value life insurance
This form ofpermanent life insuranceincludes a savings component. Over time, the savings can grow, and most policies allow you to add a long-term care rider. This rider provides a monthly benefit that is a percentage of the death benefit. For instance, a $500,000 death benefit policy could provide a $10,000 monthly income benefit for 50 months.
This option is advantageous as it combines long-term care benefits with potential life insurance proceeds for your loved ones. Keep in mind that you need to qualify for life insurance to take advantage of this option.
Asset-based long-term care annuity*
For a lump-sum premium, this annuity provides a monthly long-term care benefit for a certain number of months. If you do not use the long-term care benefit, theseannuitiescan also offer a death benefit. This type of annuity product can be better than the long-term care and life insurance options since, in most cases, you are accepted based on minimal qualifications.
The qualifications will depend on the life insurance company sponsoring the product. This means that you can receive long-term care benefits while also having a potential death benefit for your loved ones.
Fixed index annuity**
Somefixed index annuitiesoffer long-term care income benefits. These annuities typically have minimal qualifications for the product and require a lump-sum premium. It might be a good alternative if you cannot qualify for insurance or an asset-based annuity.
Home equity line of credit
This can be a good option for funding long-term care costs if you have sufficient equity in your home and can make the required monthly payments.
Reverse mortgage
This can be better than a home equity line of credit since you do not have to make payments on the loan during your lifetime. However, the initial and ongoing costs are typically more expensive than a home equity line of credit.
Selling an asset
This is how my parents funded their long-term care costs. This can be real estate, an investment account, etc. It can be an effective way to fund expenses; however, you need to have assets set aside to fund this cost.
Selling your home
In some cases,selling your homeand moving into a care facility could be a way to cover potential long-term costs. This can be a good option if you feel comfortable with the idea of moving to a care facility instead of receiving home care. However, it's important to consider the emotional impact of leaving your home. For couples, selling your home may not be feasible, unless it can fund both a care facility and cover the costs of alternative housing for the other spouse.
The above list is not all-encompassing. Insurance may be the best way to maximize the long-term care benefit and get the highest value for the lowest cost. However, it is crucial to speak with afinancial plannerwho can assist you in determining the best method to cover these potential expenses based on your circumstances.
*Annuities are best suited for long term investors. Some features may be available only by the purchase of a rider, an optional addition to an annuity or life insurance policy that is available for an additional fee. Withdrawals prior to age 59 1/2 may be subject to an additional 10% tax penalty. Surrender charges may apply. Guarantees are provided by the claims-paying ability of the underlying insurance company.
**An indexed annuity should be considered a long term investment and may include, but is not limited to, asset fees, participation rates, caps, and surrender schedules. Credited interested is based upon a formula linked to the corresponding stock market index and may be more or less than the actual index performance. Indexed annuities do not include dividends. Some features mentioned herein may be available by the purchase of a rider, an optional addition to an annuity or life insurance policy that is available for an additional fee. Guarantees are provided by the claims-paying ability of the underlying insurance company.