Budgeting Long Term Care
Long-term care costs are an x-factor many people simply do not think about when budgeting their retirement. The odds you’ll need some form of long-term care, however, are surprisingly high. According to longtermcare.gov, 70% of people turning 65 should expect to use some type of long-term care in their golden years. Budgeting Long Term Care
As calculated by Genworth financial, a semi-private room in a nursing home for 2015 cost an average of $80,300. When it comes to finances, seniors are generally on a fixed income, so how can a senior account for such an exorbitant cost? Well, if you plan ahead, there are a few options worth considering.
Medicaid:
While Medicaid is a great option, it’s not applicable to everyone. They have very strict financial and medical rules. Each state has individual guidelines, so check out this guide for your state’s limits and restrictions. Generally, Medicaid allows $2,199 a month in income and $2,000 in assets. The medical portion is determined by whether or not an individual needs care at the nursing home level. If you do qualify, you will not have out-of-pocket costs, but you must choose a care home that has an agreement with the state.
Qualified Income Trust:
If you do not qualify for Medicaid because your income is too high, you can open what is called a qualified income trust, income only trust, or Miller trust. Some states allow you to simply spend the extra money down towards medical care, while others make you create the Miller Trust. It depends whether your state is an income cap state or a medically needy state. Qualified income trusts allow a person to qualify for Medicaid even if their income is beyond the limit, usually around $2,000 per month. For example, if you make $2,600 a month and your state’s limit is $2,000, all money under $2,000 will go towards care, the state will keep the excess, and you will still qualify to receive Medicaid benefits.
Essentially, the creation of a qualified income trust is the state’s way of getting paid back for care and living expenses. The problem with medical spend-down or a qualified income trust is that, for the most part, all income goes towards care, leaving little behind for loved ones. If you’re not concerned with leaving a legacy, this is a great option because the cost of care will be taken care of; placing no financial burden on loved ones.
Reverse Mortgage:
Within the last few years, reverse mortgages have slowly gained in popularity. While not complex, this type of loan doesn’t work for everyone. A reverse mortgage is a loan borrowed against a house’s equity. Rather than making monthly payments, as you would with a normal mortgage, the bank reversely pays the homeowner each month. Essentially, the bank is slowly buying the house. If the borrower moves into a care home or dies, then the bank takes ownership of the home. If a homeowner is pretty healthy and wants some more money for retirement or in-home care, then this could be a decent option. If you are trying to leave your house behind for loved ones then this choice will not work. See a detailed list of pros and cons here.
Long-term Care Insurance:
If you are young and thinking ahead, one way to afford long-term care is to purchase a long-term care insurance plan while you are still healthy. A healthy 55 year old can find an affordable policy that provides adequate coverage. Once a life change occurs, such as a stroke or a fall, it becomes nearly impossible to qualify for long-term care insurance. Long-term care insurance pays for long-term care in the event that the policyholder needs it.
As mentioned above, Medicaid long-term care has a very strict qualification process, but many states offer what is called a long-term care insurance partnership. For example, if the policy covers $350,000 worth of care and that money is spent through, the policyholder can now apply for Medicaid with $350,000 worth of assets exempted during the qualification process. This is perfect for people who want to leave a legacy behind, but also need to qualify for Medicaid.
Max Gottlieb is the content manager of Senior Planning and ALTCS in Phoenix, Arizona. While not affiliated with any long-term care insurance provider or Reverse Mortgage brokers, Senior Planning receives many questions on these subjects. Senior Planning and ALTCS give free assistance to seniors and their families, helping them navigate the often-complicated process of finding benefits or care.
