The Economics Of Family Care
Thanks to healthier lifestyles and modern medicine, more of us are living longer. But with longevity comes the need for more money to take us into the twilight years.
The Early Show Financial Consultant Ray Martin shares some tips to help you and your aging loved ones prepare for their futures.
It's never too early to start saving for any stage of life, but when planning our financial futures, we tend to forget about our last years. These are the years when we may need the most financial help.
Most people don't like to think about getting old or sick, but by some estimates, the older population in this country is growing twice as quickly as other age groups.
One in four people will need some type of care in their older years. If you don't need to be in a hospital, but you need care, you might have to hire a skilled home-care worker or go into a nursing home.
Generally, Medicare or Medicaid does not pay for this care. And since more people will face this challenge every day, it's increasingly important for older adults to plan for their old age as soon as possible.
Planning Tips
- Family discussion: First, you need to have a family discussion so everyone is aware of the older person's needs and concerns, and what he or she may ask a loved one to do on his or her behalf.
- Elder care attorney: Second, you should consult an elder care attorney. This is an adviser who's skilled in that area.
- Update documents: And third, it is very important to update your documents.
- Will: For instance, you should update your regular will and then make sure you have a living will.
- Health care proxy: If something should happen and you become incapacitated in some way, you will want someone close to you to have the authority to make decisions on your behalf.
- Durable power of attorney: You also need to give someone what's known a durable power of attorney. This gives someone the right to carry out your personal financial and legal needs.
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To put that in perspective, if an individual needed ustodial care for five years and skilled care for another five years, the total cost could be $500,000.
This number seems daunting, but the cost doesn't present itself at once. It does, however, present different challenges in various situations.
Here are some of Martin's suggestions as to where to find the money to cover those costs:
| Resources to Cover Expenses |
| Medicare/Medicaid |
| Transfer Assets |
| Long-Term Care Insurance |
| Home Equity |
| Private Funds |
Medicare/Medicaid
Medicare, a federal health insurance program for people older than 65, provides full payment for the first 20 days of nursing home care and only partial coverage for the next 80 days. But this is only for rehabilitative care or care after you've been hospitalized for at least three days. In the scheme of things, this is virtually nothing.
After that, coverage is provided on the basis of financial need under the Medicaid program. To be eligible for this coverage, individuals or couples must meet income and resource limits set by their state of residence.
The limits are generally in the $7,000 to $12,000 per year range for income and in the $2,500 to $5,000 ranges for resources. Basically, you have to have almost no assets to qualify.
We've all heard stories of people who have saved what they think would be a nice nest egg, and then catastrophe hits.
Someone gets sick, the children are not in a position to provide home care for their parents, and the remaining spouse isn't well or strong enough to care for the sick person.
If this happens and you haven't planned ahead, the law requires that you spend down your assets to the poverty level to be able to qualify for Medicaid assistance for nursing home care.
If you want to transfer your assets to yor children and you're just talking about money, the law says you must make the transfer three years before you enter a nursing home or five years before, if trusts are involved.
This will require planning ahead and deciding to give up control over your assets before you really need to.
Transferring assets has become somewhat of a controversial issue because some people feel strongly about the fact that Medicaid is only for people at the poverty level.
But the fact of the matter is that it won't take long for people who've worked hard and saved all their life to go through their own money if they are paying for nursing home care.
The law recognizes spousal impoverishment. Traditionally, women have not been the breadwinners. Women have had less income and resources so the law allows for some distribution between spouses.
The law also makes concessions for the well spouse to be able to continue to live in their home, in their community.
Basically this is insurance that people can buy to help pay for costs like a home-care worker or a nursing home.
For some individuals concerned about the cost of long-term care and with some assets to protect, usually $200,000 to $500,000 of private insurance is worth considering.
For example, the cost of a policy providing $2,500 per month for nursing home costs for a 65-year-old male could run about $1,500 a year. Compare this with the potential benefit, and the cost can be justified.
The equity in a home provides a potential resource to use to finance the cost of long-term care.
Many elderly homeowners find themselves house rich but cash poor and find it difficult to pay for care in their homes.
One strategy is to enter into a reverse mortgage. This is a loan, but in reverse. Instead of a lump sum, the bank gives you monthly payments, and you can use your home as security for the loan.
The ideal candidate for this strategy is someone who wants to stay in his or her home but who needs additional income to pay for needed care. These programs are available for homeowners, 62 and older and meeting strict guidelines. To find out more, contact Fannie Mae at 800-732-6643 and the U.S. Department of Housing and Urban Development at 888-488-3487.
The payments from a reverse loan are nontaxable, and the gain on the eventual sale on the home is tax-free to the extent that it is less than $500,000.
For those fortunate to have planned for their financial future or with substantial resources from other means, paying for care from their financial assets is an option.
In this case, a portfolio can probably generate enough income to pay the bills, just on the interest, and you will still have the rest left oer to leave to your children.
Given the uncertainty that a long-term care expense will present itself, if this is an option, it is recommended by many advisers.
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