Legal Services Expert Hunter Law Office, P.C.
Q: Paying for long-term care is expensive. Put simply, what are my options?
Long-term care in a nursing home is a very real possibility for the majority of Americans. Studies show that somewhere around 75% to 85% of Americans over the age of 65 will spend time in a long-term care facility, like a nursing home, at some point in their lives. Today, the average nursing home in this area will cost you between $5,000 and $8,000 per month. The next question is “How will you pay for it?”
Long-term care insurance is one of the best methods, but what if you do not have long-term care insurance or your coverage is insufficient to pay for the costs of the care? Your options to pay for the nursing home bill are much more limited. Besides long-term care insurance, there are three options to cover the costs of a nursing home: you pay, your family pays, or the government (via the Medicaid benefit) pays.
Let’s take a look at the options and let you decide…
Option 1: You Pay
Imagine you have a monthly income (combined pension and social security) of $3,500, and typically use about $3,000 on your bills and living expenses, therefore leaving an excess of $500 per month. This $500 of “disposable” income may be used to pay for the costs of long-term care. (For this example, we will use the average of $6,500 for the cost of the nursing home.)
If you apply the $500 of disposable income, you must now make up the difference of $6,000 per month to cover the cost of the care. That converts to $72,000 per year of additional income required to cover the long-term care expenses. Maybe, if you’re fortunate enough, you have an investment adviser that gets you a consistent 5% rate of return on your investments. The final result is that you must have at least $1,440,000 of investable assets to generate the income necessary to cover your bill at a nursing home. $1.4 million dollars! How about we scratch that idea of you paying?
Option 2: Your Family Pays
A second option to pay for the nursing home is that your family foots the bill. We call this living in the “Sandwich Generation”– caring for aging parents while simultaneously trying to raise a family. So if you choose to bank on your family paying, life will most likely become very complicated for them. Assuming (or hoping) your family will have enough to cover the costs can be financially devastating and emotionally draining.
Option 3: The Government Pays
Another option to pay for the cost of a nursing home is that the government pays via Medicaid benefits. With proper planning, you would not have to drain your savings and investments (you have worked long and hard for them!) to afford long-term care in a nursing home. This planning is called asset protection planning and it is a very specific type of estate planning. Asset protection planning would allow you to protect the assets you have and get you or your spouse qualified for Medicaid benefits.