Long-term Care Funding Options
It is human nature to deny certain realities of life – long-term care being one of them. According to the U.S. Department of Health and Human Services, people turning 65 today has almost a 70 percent chance of needing some type of LTC services and support in their remaining years.
LTC can be costly, which is why it’s important to be prepared. So, before the time comes, learn all the options that can help fund LTC, including some you never considered!
Retirement income
If you have a tax-deferred retirement account that has a specific age set for required distributions to begin (e.g. 401(k), 403(b) and individual retirement accounts), you need to know the minimum you need to take. Taking too little will result in stiff penalties. AARP’s Required Minimum Distribution Calculator will help you determine your required minimum distribution.
Your Social Security benefits may be a big source for funding LTC. Keep in mind that the longer you wait to take Social Security, up to age 70, the more you will receive each month. If you take Social Security before your full retirement age and continue working, there may be limits on your wages earned. Learn more from Social Security Administration’s How Retirement Benefits Work.
Employer pensions are another funding source. They pay out based on the number of years worked and salary paid.
Assets and equity
Consider any valuable collections you may own (e.g. coins, art, antiques, jewelry). Selling all or part of those can provide additional money for LTC while at the same time helping you downsize. If you have investments, you could sell your stocks and/or bonds, using earnings from dividends or income from annuities as another funding source.
One of the greatest reservoirs of money for funding LTC is a home’s equity. After paying down a mortgage for decades, the value of a home can be far more than the purchase price. Selling a home permits you to use the proceeds to pay for LTC now or invest it for a time when its needed.
If you find yourself in immediate need of LTC and the sale of your home has not closed, you may be eligible for a bridge loan, which provides immediate funds to be repaid when the sale closes. Other options include a home equity loan, home equity line of credit, reverse mortgage or renting the home. For a deeper look into home equity read Forbes’ Four Ways to Use Home Equity in Your Retirement Plan.
Insurance options
LTC insurance is a well-known funding source and is available later in life. There are many factors that drive policy costs including age and health status, so applying while in good health is key to getting a more affordable policy. Read HHS’ LTC information for a better understanding.
It may be an eye opener to learn that some life insurance policies can also be used for funding senior care. This is especially helpful if you purchased life insurance to protect your family when your kids were young, but no longer need it for that purpose. Among the possibilities are combination life insurance/LTC insurance policies, policies with accelerated death benefits, life settlements and viatical settlements. Learn more from HHS’ Using Life Insurance to Pay for Long-term Care.
Public programs
You may be surprised that Medicare does not cover LTC except in specific short-term situations that meet precise conditions. Medicare is intended to be used for a hospital stay or skilled nursing facility stay following a hospital stay. It is not meant to be used or general assisted care provided in LTC.
If you have limited assets and a low-income, you may qualify for Medicaid. The program covers LTC in nursing homes and at the home as well as medical care. Medicaid is a joint federal/state program, so while federal eligibility standards apply, eligibility may differ in Maryland.
The U.S. Veterans Affairs Department provides two funding options for veterans who qualify for the VA pension and their spouses – Aid and Attendance and Housebound Benefits programs. If you are a veteran, you may apply for a VA pension at any time and, if accepted, may receive retroactive benefits.
You may be in good health, which is the perfect time to plan for LTC – you are not in a rush and have time to think things through. It may be easy to avoid planning because you feel confident you will never need LTC but trying to prepare when you find yourself needing it will be much harder.
