Many seniors dismiss moving to senior living out-of-hand simply because they don’t think they can afford it. In reality however, there are many options available for paying for senior living that many seniors aren’t aware of. From private wealth to insurance to public benefits, here’s a look at some of the possibilities.
5 tips for paying for senior living expenses
Tip #1: Look beyond the bank account
Personal wealth in retirement often extends beyond savings to include pensions, retirement accounts, investments in stocks and bonds, and annuities. Seniors who have planned ahead for retirement should make a list of all these assets, assess their value and include that in their decision about paying for senior living. Since each of these assets has different rules for distribution of funds it’s best to work with a qualified financial professional to determine when funds can be accessed without penalties.
For example, as noted in the irs.gov article, “IRA FAQs – Distributions (Withdrawals),” withdrawing too early from an IRA can have a tax penalty while failing to meet the required minimum distribution at age 72 and a half can also have tax consequences that can be considerable.
Tip #2: Long-term care insurance
Long-term care insurance is probably the first thing that comes to mind when thinking about paying for senior living and it is a wonderful source of funds if a move to assisted living or memory care becomes necessary and all the conditions are met. Even if it wasn’t purchased before retirement according to the forbes.com article, “How Much Is Long-Term Care Insurance?,” it may be worth considering.
Tip #3: Life insurance
Even those without long-term care insurance may still have insurance options to tap into when paying for senior living. One of those is a whole life insurance policy. Seniors who purchased a whole life policy decades ago to protect their family will have accrued considerable value that can be accessed in several ways. According to the nerdwallet.com article, “How to Get Cash From Your Life Insurance Policy,” these include:
- Surrendering the policy for the cash value minus fees. This will end all policy coverage and death benefits and the amount received may be subject to taxes.
- Borrowing from the policy and repaying the amount with interest. Keep in mind that borrowing will lower the death benefit if the loan is not repaid, accrue interest that may compound, and increase the loan balance, which if it exceeds the cash value may cause the policy to lapse.
- Withdrawing cash, which will lower the amount left to beneficiaries, is limited by the amount paid into the policy, and may incur fees and taxes.
In addition, the acl.gov article, “Using Life Insurance to Pay for Long-term Care,” defines two other options:
- Life settlement, which is the actual sale of the policy for its present value. This is only available to women aged 74 or older and men aged 70 and older and may be taxed.
- Viatical settlement is similar to a life settlement but can only be used if the policyholder is terminally ill. The policyholder receives a percentage of the death benefit based on life expectancy, which cannot exceed two years. The shorter the life expectancy, the more benefit can be received. The policy is then owned by the viatical company which becomes the beneficiary.
While all of these ways to use life insurance for paying for senior living are possibilities, it’s always a good idea to consider all the pros and cons of each with a qualified insurance agent or financial professional.
#4: Social Security benefits
Social Security benefits are one of the least complicated sources for paying for senior living. Once social security begins and payments are received, those dollars can be used for paying for senior living or anything else a senior needs. The amount of social security is based on the number of years paid into the program, the wages earned, when the benefit begins, and any annual cost of living raises so the amount varies from person to person. In addition, some seniors may also qualify for Supplemental Social Security Income (a.k.a. SSI), which is based on income, disability, and other factors.
#5 Veterans benefits
For veterans of the U.S. Armed Forces, the VA Aid and Attendance or Housebound benefits program is another option for paying for senior living. Like most government programs there are many requirements to be met to qualify but the first step is to apply for and receive the VA pension. For more about applying for veterans benefits check out the va.gov article, “VA Aid and Attendance benefits and Housebound allowance.
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