How to Pay for Senior Care: Tips from Finance Pros

January 18, 2019 / General
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How much does senior care cost and how can you pay for it? We got expert advice from professionals to help you plan for the future.

Average Cost of Senior Care

When do seniors need to pay for care? Many aging adults do just fine managing their homes, health, and finances. However, an unexpected illness, injury, or death of a spouse can often be the catalyst for needing additional help. 

According to a 2018 Cost of Care Survey by Carescout, the average cost of an in-home health aide in California is $4,957 per month or $59,488 annually.

The average cost of assisted living or nursing home facility can average between $4,500 and $9,817 per month, or $54,000 to $117,804 annually.

If you need memory care services for Alzheimer’s disease or dementia, the cost can be even higher.

One important factor that determines the cost of senior care is the quality of the facility or caregiver you choose. Top-of-the-line, privately-owned luxury senior communities can often offer superior amenities, privacy, and comfort, but come at a higher cost compared to your average, run-of-the-mill, corporate-owned facility.

How to Pay for Senior Care

The cost of senior care can feel overwhelming, particularly for aging adults with little to no income. How do you pay for caregivers when you're not working or only receive social security benefits?

We spoke with certified financial planners and insurance experts to get professional tips on planning ahead - and paying for - senior care.

Here’s what they recommend:

1. Prepare Early

It’s never too early to begin planning for an extended life expectancy. Of all the continents in the world, the United States ranks first for life expectancy.

That’s the good news.

The bad news is 68% of adults aged 65 or older are likely to become physically or cognitively impaired, according to an AARP report.

That’s nearly 7 out of 10 seniors who will need some sort of senior care.

One certified financial planner we spoke with advises all of his clients to begin seriously planning for senior care once they reach their 50s - and no later than their 60s. 

Here are the financial tools our experts recommend the most:

2. Get Long-Term Care Insurance

Long term care insurance is the primary thing you can do to help prepare in the event you need senior care later in life, says the financial experts we spoke to.

Long term care (LTC) insurance can cover many of the costs of in-home care, assisted living facilities, and nursing homes, paying for services that aren’t covered by typical health insurance. This can include assistance with routine activities such as bathing, dressing, eating, or getting in and out of a bed or chair.

The earlier you can get LTC coverage, the better. Some of the factors determining your LTC rates are your age and health.

To put it simply, the older you are or the more health problems you have, the more expensive your premiums will be.

Wait too long, and you may not be able to get coverage at all.

Luckily, if you and your spouse both need LTC insurance, you can often get discounts by purchasing both of your policies together. 

Pro tip: Be sure your long term care insurance includes benefits for both in-home and facility care, so you can choose the right senior care option for you.

3. Choose Permanent Life Insurance

Life insurance comes in two different forms, term and permanent. But only one of these can be helpful if you need to pay for senior care.

Permanent life insurance, such as whole, universal, and variable universal life, generally offers both a death benefit that pays out after your passing and a living benefit that allows the policyholder to access cash while still living.

How does this work? Permanent life insurance policies typically include a cash value component. When you pay your premium, a portion goes toward the death benefit while another portion is invested into the cash value. This cash value and any potential dividends can grow, tax-deferred, and become a source of income you can access later in life. 

Pro tip: Be sure you understand what’s in your policy. Ask your insurance provider questions specifically addressing how your policy can help you pay for in-home or facility care as you age. 

4. Retirement Savings

Financial advisors and insurance professionals recommend turning to long-term care insurance and permanent life insurance as the primary tools for paying for senior care.

Another option is saving outright.

A Roth IRA is a retirement savings account recommended by many financial planners.

According to Dave Ramsey, a Roth IRA stands “head and shoulders above the rest” of retirement investing options. “It’s easy to set up, is simple to maintain, and comes with tax advantages that enable you to build wealth and increase your retirement savings for the long haul.”

A Roth IRA is an individual retirement savings account that allows you to pay taxes on the money you put in on the front-end, rather than owing taxes when you withdraw for retirement.

Roth IRA benefits include:

• Money invested in Roth IRA grows tax-free
• You won’t owe taxes if you withdraw in retirement
• You’re not required to take distributions at a certain age
• You can keep contributing if you work past retirement age

A Roth IRA isn't the only retirement investment account available, and may not be the right choice for everyone. Talk to a trusted financial planner to see what sort of savings plans will work best for your financial goals. 

Pro tip: Don’t put the cart before the horse. The financial experts we spoke to suggest paying off debt and building an emergency fund of 3 - 6 months living expenses before investing in a Roth IRA or other retirement investment account.

Are You Prepared for Your Retirement?

There’s a very good chance that you may need some sort of senior care option in the future, whether that’s in-home care or a relocation to a nursing home, memory care, or assisted living facility.

Paying for senior care can be tough when you’re retired and not earning income. Which is why it’s important to plan ahead.

The financial experts we spoke to were all in agreement about the importance of planning ahead and being prepared for the likelihood of needing senior care. Paying for senior care may be one of the biggest financial hurdles we face in the U.S. According to one certified financial planner, less than 10% of Americans can afford to pay for in-home care or facility care as they age.

Talk to a trusted and experienced financial planner and insurance professional to discuss your options for planning ahead for your future needs and you can rest easy knowing you’re prepared no matter what comes your way.

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