Retirement is often viewed through rose-colored glasses as a time of fun, freedom and carefree living. Take off those glasses, however, and the reality may be quite different. According to the acl.gov article, “How Much Care Will You Need?,” people 65 and older have nearly a 70% chance of needing long-term care during their remaining years with 20% needing it for longer than five years. But even if seniors feel financially unprepared for funding senior care there are options that should be considered.
Retirement income
For those who worked for decades retirement accounts are often among the most accessible sources for funding senior care. Tax-deferred accounts like 401(k) and individual retirement accounts are two examples. According to the investopedia.com article, “401(k) Withdrawal Rules: How to Avoid Penalties,” the IRS allows penalty-free withdrawals (aka qualified distributions) at age 591/2 and both 401(k) and IRA accounts require minimum distributions beginning at either age 72 or 73 depending the year of birth.
A third source for funding senior care is Social Security benefits which can be taken as early as age 62 but will provide higher payments for those who wait until age 70. Many seniors take Social Security and continue working (and paying in) but there are annual limits on wages earned up to full retirement age. For more about how social security works the ssa.gov article, “Plan for retirement,” can help.
Similarly, other investments like stocks, bonds and annuities, certificates of deposit, pensions, real estate, and collections like art, vehicles, and jewelry are also readily available sources of money for funding senior care.
Before deciding what sources to use and when it’s best to consult a licensed financial advisor to maximize funds and avoid penalties.
Insurance options
For seniors who purchased long-term care insurance funding senior care can be easier but there are caveats. Different policies have different requirements for claims and coverage may only begin when these are met and verified by a physician. As noted in the nerdwallet.com article, “Long-Term Care Insurance Explained,” even when all prerequisites are met, most policies only provide payment after a period of 30, 60, or 90 days, during which payments for care must be paid out-of-pocket.
Another often overlooked source for funding senior care is life insurance which is often purchased to protect a young family but is no longer needed for that purpose. Although term life insurance has no cash value, whole life and universal life insurance policies do build cash value which can be accessed for funding senior care.
According to the longtermcare.gov article, “Using Life Insurance to Pay for Long-term Care,” there are several ways to use life insurance for funding senior care including:
- Life settlement – The sale of a policy for its cash value. This is only available to women age 74 or older and men age 70 and older and may be taxed.
- Viatical settlement – The sale of a policy to a third party that’s allowed only in the event of a terminal illness. The policyholder receives a percentage of the death benefit based on life expectancy and the viatical company becomes the owner and beneficiary and receives the full death benefit upon death.
- Accelerated death benefit – When included in a policy it allows for tax-free advance of the policy’s death benefit in cases of terminal illness, a life-threatening diagnosis, permanent confinement in a nursing home, or the need for extended long-term care.
One more type of policy that can help with funding senior care is a combination life-and-long-term care policy. As described in the insurance.com article, “5 questions to ask before buying a combination life insurance and long-term care policy,” this option can be less expensive than separate policies for life and long-term care but must be purchased together since it’s often not possible to add a long-term care rider later.
Government sources
Although Medicare doesn’t usually provide funding senior care over the long term, Medicaid may. A joint federal/state program, Medicaid is available to low-income people with limited assets and may cover long-term care, as well as many medical needs for those who qualify.
The Veterans Administration is another option for funding senior care for veterans and their surviving spouses who meet the requirements of the Aid & Attendance program and the Housebound Benefits program. To qualify veterans must first apply for and receive the VA pension as outlined in the va.gov article, “Eligibility for Veterans Pension.” Next veterans must meet the requirements defined in the va.gov article, “VA Aid and Attendance benefits and Housebound Allowance,” and apply for benefits using the form(s) available for download and any additional information to support their case.
For more tips, download our “Funding Guide” and contact us to learn more!
