The number of Americans using paid long-term care services is expected to double to 27 million in 2050 from 13 million in 2000, according to the nonprofit Family Caregiver Alliance.
If you have an aging spouse or parent, you might need help caring for them. And with the national median ranging from $17,904 annually for adult day health care to $91,250 per year for full-time nursing-home care in a private room, that care will come with significant costs. Fortunately, there are several options for financing a loved one's care.
Long-Term Care Insurance
One of the best ways to fund elder care for a family member — or yourself, for that matter — is with long-term care insurance, says Regions Investment Solutions Financial Advisor Mark Gartman. "The best advice I can give someone is to prepare for long-term care before you need it," he says. "I realized early on I needed to make sure my mother would be taken care of — not only for herself but also for me. If she ever got to a point in her life where she could no longer take care of herself, that could become a burden on me financially and physically."
When you're considering potential policies, review whether the policies allow you to choose among home care, assisted living, and a nursing home or if only one type of care will be available. You'll also want to confirm whether the policies will only pay a certain amount or percentage of the care costs.
Annuity with Income Rider
"If your loved one doesn't qualify for long-term care insurance, consider an annuity with an income rider that will increase the income benefit for a specified period specific to long-term care needs," says Gartman. An annuity, he explains, is a financial product you pay into for a period of time in exchange for a fixed annual payout in the future for a predetermined duration. A hybrid annuity typically includes a tax-free, long-term care rider that ensures double or triple the annual payout for a set number of years to cover long-term care. Although the medical underwriting is usually less stringent than typical insurance, the initial premium is typically high: Annuities can require a minimum upfront investment of $50,000 or more.
Additional Ways to Fund Long-Term Care
Medicare only pays for long-term care if it's strictly medical, and it usually isn't. If your loved one does not qualify for Medicare and needs long-term care now and has neither insurance nor an annuity hybrid, their only choice is to fund care with their personal assets, Gartman says.
Doing so could quickly deplete their estate depending on their resources and care needs. Gartman recommends putting your loved one's cash in a money market account — which offers a higher interest rate than a typical savings account and the security of a bank backed by the FDIC — instead of an investment vehicle to protect it from market volatility.
Other options for your loved one include:
- Life insurance, if their policy allows them to receive a tax-free advance on their death benefit
- A charitable remainder trust, which can be used to fund a loved one's long-term care while you're alive, with the rest of the funds going to a designated charity upon your death
When it comes to long-term care for loved ones, it pays to start planning as soon as possible. "You don't want to wait until the last second," Gartman says. "If you do, and something catastrophic happens, you're both going to pay the consequences."
