Long-term care can wipe out your retirement savings. In a worst case scenario, it leaves the surviving spouse in poverty for the rest of their lives while making quality long-term care impossible for them. Long-term care insurance is one potential solution, but it has its downsides. You have to have it well before you need it, and its cost means it isn’t an option for many. Let’s look at a few of the alternatives for managing long term care costs.
Build Up an Emergency Fund
If you have a six month emergency fund, you don’t have to have income replacement insurance. Furthermore, you have enough money to pay for long-term care for several weeks until the long-term care policy kicks in. The longer the elimination period on the long-term care policy, the lower your premiums. You can take out a disability insurance policy to help cover the gap, if you can’t cover six months of living expenses plus medical costs.
Take Advantage of Alternatives to Long-Term Care Facilities
The average person stays in a long term care facility 15 months, because it is generally only necessary at the end of life. Yet many people move relatives to a nursing home when there are many other options. For example, you could hire a home health agency to provide in-home care. Not only is this cheaper than a nursing home, but it allows the person to stay home. If you can’t provide supervision or care during the day, take advantage of adult day services. This is an ideal solution for someone with moderate dementia or mental illness. Assisted living is more affordable than a nursing home, though it is only suitable for those who don’t have serious medical needs.
Take Reasonable Steps to Reduce the Price Tag
A private room in a nursing home can cost a hundred thousand dollars a year. Conversely, sharing a room with another patient can reduce loneliness while reducing costs.
Tap Into Every Asset You Have
Use your health savings account to pay for long-term care. In fact, HSA funds can be tapped to pay for both long-term care and LTC insurance. You can even contribute money to the HSA and then pull it out tax free to pay for medical expenses.
If your loved one has a serious diagnoses, find out if their life insurance death benefits can be accelerated to help pay for long-term care. A life-settlement involves selling the policy in exchange for money. Note that this means nothing will be left to your heirs, but this preserves your remaining assets. If your life insurance policy has a chronic illness rider, you may be able to tap into it to pay your long-term care bills.
Use the person’s Social Security check and/or pension to pay the bill. This income is intended to provide for their needs. This approach has several other points in its favor. The surviving spouse gets in the habit of living off their own retirement benefits. It doesn’t require illegal maneuvering to try to put your family member into a nursing home paid for by Medicaid. And the dedication of these funds to the person’s care means you don’t have to come up with as much money from other sources to pay for it. For example, you should be looking at withdrawals from their IRA to pay for their long-term care. The average stay in a nursing home is 6 months, though the minority who live there for years pull up the average. Consider tapping into their IRA using the medical expense deduction, because they probably no longer need the money to pay for years in retirement.
Research Available Programs
Do not hide assets from the government to try to protect your home from your family member’s medical bills. The five year claw-back provision makes this almost impossible, and trying to make everyone else pay your relative’s bills through welfare is immoral. However, there are legitimate programs you can take advantage of. For example, the Veterans Administration offers up to 1800 dollars a month for those who served in the military during wartime. The VA has other programs available to vets, too.
Disclaimer: This content does not necessarily represent the views of IWB.