Financial Planning For Long-Term Care For Aging Parents - Money Mastery Millennial (2024)

Have you thought about what will happen when your parents grow old and require long-term care?

It’s a tough topic to think about, but it’s important to plan.

Did you know that 70% of people aged 65 and over will require long-term care at some point in their lives?

And that care can be very expensive, with the average cost of a semi-private room in a nursing home reaching over $90,000 per year.

As daunting as those numbers may be, there are steps you can take to financially prepare for your parent’s long-term care needs.

In this article, we’ll take a look at financial planning for long-term care for aging parents or family members.

We’ll start by understanding what long-term care is and why it’s important to plan.

Then, we’ll explore ways to plan for long-term care needs, such as assessing your parents’ needs, estimating costs, and researching available options.

We’ll also discuss government programs and benefits for long-term care, as well as how to choose the right long-term care provider.

Finally, we’ll delve into the financial side of things, including setting a budget, saving for long-term care, and tax implications.

By the end of this article, you’ll have a better understanding of long-term care and the importance of financial planning for aging parents.

So, let’s dive in!

1. Understanding Long-Term Care for Aging Parents

As your parents grow older, they may need more care and assistance with daily activities.

Long-term care is a type of care that assists people who have chronic health conditions or disabilities.

This care can be provided at home, in a nursing home, or an assisted living facility.

1.1 Defining Long-Term Care

Long-term care is a range of services that are designed to meet the needs of people who require assistance with daily activities over an extended period.

These services may include:

• Assistance with activities of daily living (ADLs), such as bathing, dressing, eating, and using the bathroom.
• Assistance with instrumental activities of daily living (IADLs), such as managing finances, taking medications, and preparing meals.
• Skilled nursing care for medical needs.
• Rehabilitation services, such as physical therapy and occupational therapy.

Long-term care services can be provided at home, in the community, or a facility.

1.2 Types of Long-Term Care Services

There are several types of long-term care services available, depending on the needs of your aging parents:

• Home health care: This type of care is provided in the home and may include skilled nursing care, physical therapy, or personal care assistance. Home health care can be provided by a licensed healthcare professional, such as a nurse or therapist, or by a home health aide.
• Adult day care: This type of care provides social activities, meals, and some health-related services during the day. It is usually provided at a community center or senior center.
• Assisted living: Assisted living facilities provide housing, meals, and assistance with activities of daily living for people who need some help but are still able to live independently.
• Nursing home care: This type of care is provided in a facility and includes 24-hour medical care and assistance with daily activities for people with more serious health needs.

1.3 Who Needs Long-Term Care

According to the U.S. Department of Health and Human Services, about 70% of people aged 65 and over will require long-term care at some point in their lives.

Women are more likely than men to need long-term care, and people who live alone are also at a higher risk.

Additionally, those with chronic health conditions, such as diabetes or heart disease, are more likely to need long-term care.

It’s important to start planning for long-term care needs as early as possible, as it can be costly and may require significant financial planning.

Understanding the types of long-term care services available can help you make informed decisions about the best care for your aging parents.

Table: Long-Term Care Services and Their Description

1.4 How Long-Term Care Differs from Other Types of Care

It’s important to understand how long-term care differs from other types of care, such as acute care or hospice care.

Acute care is typically provided for a short period to treat a specific health condition, such as a heart attack or stroke.

Hospice care is end-of-life care provided to people with terminal illnesses.

Long-term care, on the other hand, is designed to provide ongoing assistance with daily activities for people who have chronic health conditions or disabilities.

It may be needed for an extended period, sometimes for the rest of a person’s life.

1.5 Long-Term Care Costs

Long-term care can be expensive, and costs vary depending on the type of care needed, the location, and the provider.

According to a Genworth Cost of Care survey, the national median cost of a semi-private room in a nursing home is $7,756 per month, while the national median cost of a home health aide is $4,576 per month.

These costs can quickly add up and have a significant impact on your aging parent’s finances.

It’s important to plan for long-term care costs and consider the following factors:

• Medicare: Medicare does not typically cover long-term care costs. However, it may cover some short-term skilled nursing care or home health care if certain requirements are met.
• Medicaid: Medicaid is a joint federal and state program that may help cover long-term care costs for people with limited income and assets.
• Private insurance: Long-term care insurance can help cover the costs of long-term care services. However, it can be expensive and may not be available or affordable for everyone.
• Personal savings: Planning and saving for long-term care costs can help reduce the financial burden.

Table: Long-Term Care Costs by Type of Service

Source: Genworth Cost of Care Survey, 2020

Understanding long-term care and its costs is crucial for effective financial planning for your aging parents.

By knowing the different types of care available, how it differs from other types of care, and the potential costs, you can make informed decisions and prepare for the future.

2. How to Plan for Long-Term Care for Aging Parents

Planning for long-term care for your aging parents can be overwhelming, but starting early and being proactive can help alleviate some of the stress.

Here are some steps you can take to plan for long-term care:

2.1 Start Planning Early

It’s never too early to start planning for long-term care for your aging parents.

Ideally, you should begin the planning process before they need care.

This will give you time to research different options and create a plan that works for your family.

2.2 Assess Your Parents’ Needs

Before you can create a plan for long-term care, you need to assess your parent’s needs.

Consider the following questions:

• What type of care do they need?
• How much care do they need?
• What is their current health status?
• What is their financial situation?

By answering these questions, you can better understand your parents’ needs and create a plan that meets their specific requirements.

2.3 Estimate Long-Term Care Costs

Long-term care costs can vary depending on the type of care needed, the location, and the provider.

To estimate the potential costs, consider the following factors:

• Type of care needed (nursing home, assisted living, in-home care)
• Location (costs can vary by state and region)
• The provider (costs can vary depending on the provider)

Once you have estimated the potential costs, you can create a budget and begin exploring different payment options.

Here’s a sample table for Long-Term Care Budget

Planning for long-term care for your aging parents can be challenging, but it’s important to start early and be proactive.

By assessing your parents’ needs, estimating the potential costs, and creating a budget, you can develop a plan that works for your family and ensures your parents receive the care they need.

2.4 Research Available Options

After assessing your parents’ needs and estimating potential costs, it’s important to research available options for long-term care.

Some options to consider include:

• Nursing homes
• Assisted living facilities
• In-home care
• Adult daycare
• Respite care

Researching the different types of care available can help you determine the best option for your parent’s needs and budget.

2.5 Consider Long-Term Care Insurance

Long-term care insurance can help cover the costs of long-term care for your aging parents.

This type of insurance is designed to pay for services that are typically not covered by health insurance, such as in-home care or assisted living.

The cost of long-term care insurance can vary based on factors such as age, health status, and the amount of coverage needed.

Here’s a sample table for Long-Term Care Insurance Costs

2.6 Discuss Finances with Your Parents

Discussing finances with your parents can be a difficult conversation, but it’s important to have an open and honest discussion about long-term care costs and how they will be covered.

Some things to consider when discussing finances with your parents include:

• Their current income and expenses
• Their retirement savings
• Any long-term care insurance policies they may have
• Other sources of income, such as Social Security or a pension

Having a clear understanding of your parent’s finances can help you create a realistic plan for long-term care and ensure that they receive the care they need without putting a financial strain on your family.

Planning for long-term care for your aging parents can be overwhelming, but by researching available options, considering long-term care insurance, and discussing finances with your parents, you can create a plan that works for your family and ensures that your parents receive the care they need.

3. Government Programs and Benefits for Long-Term Care

When planning for long-term care for aging parents or family members, it’s important to consider government programs and benefits that can help cover the costs.

Here are some of the most common programs and benefits you should be aware of:

3.1 Medicaid

Medicaid is a joint federal and state program that provides healthcare coverage to low-income individuals, including those who need long-term care.

In most states, Medicaid covers some or all of the costs of long-term care in a nursing home, as well as some home health care and community-based services.

To qualify for Medicaid, your parent or family member must meet certain income and asset requirements, which vary by state.

In general, they must have very limited income and assets, although some assets may be exempt, such as a primary residence or personal belongings.

3.2 Medicare

Medicare is a federal health insurance program for people aged 65 and older, as well as some younger people with disabilities.

While Medicare doesn’t typically cover long-term care, it may cover some short-term stays in a skilled nursing facility for medically necessary services, such as rehabilitation after a hospital stay.

It’s important to note that Medicare will only cover a certain number of days in a skilled nursing facility, and only if the person requires skilled care.

Additionally, Medicare doesn’t cover custodial care, which is assistance with activities of daily living, such as bathing and dressing.

3.3 Veterans Administration Benefits

The Veterans Administration (VA) provides a range of benefits to veterans and their families, including long-term care benefits.

The VA has its healthcare system, which includes nursing homes and other long-term care facilities.

To qualify for VA long-term care benefits, your parent or family member must be a veteran or the surviving spouse of a veteran who meets certain eligibility criteria.

They must also have a medical need for long-term care, as determined by the VA.

It’s important to note that there may be other government programs and benefits available in your state or community, so it’s worth doing some research to find out what options are available to you.

Additionally, the eligibility requirements for these programs can be complex, so it may be helpful to consult with an elder law attorney or financial planner who specializes in long-term care planning.

3.4 Social Security Disability Insurance

Social Security Disability Insurance (SSDI) is a program that provides financial assistance to individuals who are unable to work due to a disability.

The program is administered by the Social Security Administration (SSA) and is funded through payroll taxes.

To qualify for SSDI, an individual must have a disability that is expected to last at least one year or result in death.

They must also have worked long enough and recently enough to be insured under the program.

The amount of the benefit is based on the individual’s earnings record, and there is a five-month waiting period before benefits can be paid.

While SSDI does not specifically cover long-term care, it can help pay for medical expenses related to a disability, which may include long-term care services.

Additionally, if a family member is caring for the individual, they may be eligible for caregiver benefits through the program.

3.5 Supplemental Security Income

Supplemental Security Income (SSI) is a federal program that provides financial assistance to individuals who have limited income and resources and are aged, blind, or disabled.

The program is also administered by the SSA and is funded through general tax revenues rather than payroll taxes.

To qualify for SSI, an individual must have limited income and resources, be a U.S. citizen or legal resident, and meet certain other criteria.

The amount of the benefit is based on the individual’s financial need and may vary depending on the state in which they live.

Like SSDI, SSI does not specifically cover long-term care services.

However, it can help pay for medical expenses related to a disability or illness, which may include long-term care.

Additionally, some states have Medicaid programs that provide long-term care services to individuals who receive SSI.

4. Long-Term Care Providers

When it comes to long-term care, there are several types of providers to choose from.

Understanding the differences between each provider is essential to choosing the right one for your loved one.

4.1 Types of Long-Term Care Providers

1. Home Health Agencies: These providers offer in-home services such as skilled nursing care, physical therapy, and personal care assistance.
2. Assisted Living Facilities: These are residential facilities that provide personal care services, such as assistance with bathing and dressing, medication management, and meal preparation.
3. Nursing Homes: These facilities offer 24-hour medical care, as well as assistance with activities of daily living such as bathing and dressing.
4. Continuing Care Retirement Communities: These are communities that offer various levels of care, from independent living to assisted living to nursing home care, all in one location.

4.2 Choosing the Right Long-Term Care Provider

Choosing the right long-term care provider is crucial to ensuring your loved one receives the care they need.

Here are some factors to consider when making your decision:

1. Location: Consider the location of the provider in relation to your loved one’s current residence or your own. Is it convenient to visit regularly?
2. Cost: Long-term care can be expensive, so it’s important to consider the costs associated with each provider. Compare prices and services offered to find the best fit for your budget.
3. Quality of Care: Check the provider’s quality ratings and reviews online. Look for feedback from current and past residents and their families.
4. Staff: Ensure the provider has adequate staff and that they are trained and licensed appropriately.
5. Services Offered: Consider the specific services that your loved one needs and whether the provider offers those services.

Choosing the right long-term care provider can be challenging, but with careful consideration of the factors listed above, you can make an informed decision that provides the best possible care for your loved one.

4.3 Questions to Ask a Long-Term Care Provider

When it comes to choosing a long-term care provider, there are many questions that you should ask to ensure that the provider is the right fit for your loved one.

Here are some questions to consider:

1. What are your staff-to-resident ratios?
2. What kind of training do your staff members receive?
3. What is your approach to personalized care plans?
4. What is your policy on visitation?
5. What types of medical care are available on-site?
6. What types of social and recreational activities do you offer?
7. How do you handle emergencies and medical crises?
8. How do you handle end-of-life care?
9. What is your discharge policy?

4.4 Evaluating Long-Term Care Providers

Once you have gathered information from potential long-term care providers and have narrowed down your list of options, it’s time to evaluate them.

Here are some factors to consider:

1. Reputation: Look up reviews and ratings from previous residents and their families.
2. Cleanliness: Tour the facility and pay attention to the cleanliness of the building, resident rooms, and common areas.
3. Staff: Observe how staff members interact with residents and ask about their qualifications and training.
4. Activities: Ask about the types of social and recreational activities that are offered to residents.
5. Special needs: If your loved one has specific needs, such as memory care or physical therapy, ask about the provider’s expertise in those areas.
6. Cost: Compare costs between providers and consider any potential hidden fees or additional expenses.

By carefully considering all of these factors, you can make an informed decision about which long-term care provider is the best fit for your loved one’s needs.

5. Financial Planning for Long-Term Care

5.1 Setting a Budget

One of the first steps in planning long-term care is to set a budget.

You need to know how much you can afford to spend on long-term care services for your aging parents.

Consider factors such as your parents’ income, your income, and your other expenses.

A budget can help you determine how much you need to save and what types of long-term care services you can afford.

When setting a budget, consider the following:

1. Income: How much income do your parents have? Do they have retirement savings or pensions that can be used to pay for long-term care services? What is your income, and how much of it can you contribute to your parent’s care?
2. Expenses: What are your parent’s current living expenses? How much of those expenses will continue if they need long-term care? What are your expenses, and how much can you contribute to your parent’s care without sacrificing your financial stability?
3. Long-term care costs: How much do long-term care services cost in your area? What types of long-term care services will your parents need? How long will they need those services?

Once you have a clear understanding of your financial situation, you can set a budget that is realistic and achievable.

This can help you avoid overspending or running out of money when paying for long-term care services.

5.2 Saving for Long-Term Care

Long-term care is expensive, and it is important to start saving early to ensure that you have enough money to pay for it.

There are several ways to save for long-term care, including:

1. Retirement savings: If your parents have retirement savings, they can use those funds to pay for long-term care services. However, it is important to be aware that long-term care can quickly deplete retirement savings.
2. Health savings accounts (HSAs): If you or your parents have an HSA, you can use the funds to pay for long-term care services. However, HSAs have contribution limits, so it may not be possible to save enough to cover all long-term care expenses.
3. Long-term care insurance: Long-term care insurance can help cover the cost of long-term care services. However, it can be expensive, and the premiums may increase over time.
4. Personal savings: Saving money in a dedicated long-term care fund is one of the most effective ways to prepare for long-term care expenses. By setting aside money each month, you can build up a significant sum over time that can be used to pay for long-term care services.

Saving for long-term care requires discipline and long-term planning.

However, it can help ensure that you are financially prepared for the costs of long-term care and can provide peace of mind for both you and your aging parents.

5.3 Investment Strategies for Long-Term Care

One way to plan for long-term care expenses is to invest in financial instruments that provide a stable source of income.

A few options to consider are:

• Annuities: An annuity is a financial product that guarantees a fixed or variable payment to the investor at regular intervals for a set period, or for life. Annuities are often used to provide a steady stream of income in retirement. Investing in an annuity can help cover the costs of long-term care in the future.
• Mutual Funds: Mutual funds are a collection of stocks, bonds, and other investments that are managed by a professional. Investing in mutual funds can provide an opportunity for growth over the long term, but they also come with risks.
• Exchange-traded funds (ETFs): ETFs are similar to mutual funds in that they hold a basket of investments, but they can be traded like stocks. ETFs are often more cost-effective than mutual funds, and they can provide exposure to a wide range of asset classes.
• Real Estate Investment Trusts (REITs): A REIT is a type of investment that owns and manages income-producing real estate properties. Investing in REITs can provide a regular source of income through dividends and capital appreciation.

5.4 Tax Implications of Long-Term Care

Long-term care expenses can be tax-deductible if they exceed a certain percentage of your income.

According to the IRS, the eligible expenses must be primarily to alleviate or prevent a physical or mental disability or illness and must be incurred for a chronically ill individual.

The deduction is subject to an income-based threshold, which is adjusted annually.

For example, in 2021, the threshold for individuals under the age of 65 was 7.5% of their adjusted gross income (AGI).

That means that if an individual has an AGI of $50,000 and spends $10,000 on qualifying long-term care expenses, they can claim a deduction for the amount that exceeds $3,750 (7.5% of $50,000).

It’s important to note that not all long-term care expenses are tax-deductible, and there are limitations to the amount that can be deducted.

It’s a good idea to consult a tax professional to determine if you qualify for the deduction and to ensure that you’re taking advantage of all the tax benefits available to you.

Bottom Line…

In conclusion, planning for long-term care for aging parents or family members can seem daunting, but it is an essential part of personal finance for millennials.

With an increasing number of people requiring long-term care, it is important to understand the options available and the associated costs.

By starting early and assessing the needs of your loved ones, you can make informed decisions and create a comprehensive financial plan that meets your family’s unique requirements.

We have discussed the different types of long-term care providers and the questions to ask when evaluating them.

We have also looked at government programs and benefits that can help with long-term care costs.

Additionally, we have explored financial planning strategies, such as budgeting, saving, investing, and understanding tax implications.

According to a study by the U.S. Department of Health and Human Services, about 70% of people over the age of 65 will require some form of long-term care.

The cost of long-term care can be significant, with the average cost of a private room in a nursing home exceeding $100,000 per year.

It is crucial to start planning early to ensure that you and your family are financially prepared for any potential long-term care needs.

Overall, planning for long-term care is an important aspect of personal finance that millennials should not overlook.

With careful planning, you can ensure that your loved ones receive the care they need without putting a strain on your finances.