As our average population continues to age and increased inflation takes its toll on retirees’ asset levels, children are confronted with the very real possibility of needing to financially care for aging parents. In fact, 28 US states have laws mandating that adult children support their aging parents. This is a discussion of how to financially plan for this.
Talking about feelings, death, money, and healthcare can be tough for some families but it can be done. The reality is that 70% of people over the age of 65 will require long term care at some point in time. This means that they would not be able to perform basic activities of daily living and would require professional care. You don’t want it to be a huge surprise. If your family is one of the families averse to talking about these things, try to be the advocate to make these happen from a place of love.
It’s important to ask the following questions:
- Have your parents saved enough for the lifestyle they want to live for retirement?
- What will happen if they are no longer able to take care of themselves? Do they want to stay at home? Do they expect to move in with you?
- Do they have long term care insurance?
- Do they have specific wishes if they became incapacitated? Have they documented those wishes in writing or worked with an estate planning attorney?
- Does anyone in your family have power of attorney if they became incapacitated?
Once you understand your parents’ situation and expectations, if you have siblings, you should communicate with them:
- Does one sibling make significantly more money and plan to fund shortfalls themselves?
- Is one sibling local and able to help more hands-on?
- Do your siblings want to jointly manage this risk by adding long term care insurance?
- Will one sibling want to take on the administrative tasks such as handling finances or managing the care schedule?
Costs Of Care
Many people may be surprised to learn that Medicare does not cover the costs of long term care. It will cover the first three days in the hospital and 30 days of skilled nursing for patients that are showing improvement week to week. Usually toward the end of one’s life, their condition is not improving. And on average, situations where long term care is needed last for years on end.
What are those costs ? Nationally, if your parents want home care, the average costs are about $5,000 per month. If your parents wish to have a private room in a facility, those costs are closer to $9,000 per month. If they have insurance or about $300,000 in excess retirement savings, there’s a chance your parents are taken care of, and your support won’t be needed. If not, you may want to consider setting funds aside.
Once you have discovered what the funding needed may be for your parents, it is important to plan for where those funds are going to come from.
If the funding needed is small or your parents likely will not need additional support to cover costs, you may decide to fund from your income if there is room every month in your budget.
Setting Aside Money
Setting aside sufficient money to fund parental care can be difficult because there is no way of knowing in advance when care will be needed, or for how long. First, make sure your personal planning needs are met (retirement, education funding, emergency reserves), then you can potentially set aside some more flexible funds that could be accessed for a parental care need.
Many states have started to consider legislation for adding state-run long term care insurance in exchange for additional taxes. The only state-run program that has been put in place so far was created by Washington in 2021 . In exchange for a .58% payroll tax, residents can expect $36,000 in total benefits, which would be roughly equivalent to 4 months in a facility or 7 months of home care.
Those seeking private insurance can customize benefits and receive higher amounts of coverage. It is important to work closely with an insurance agent because policies and benefits can vary widely. One key policy difference can be a reimbursement benefit versus an indemnity benefit.
Those with a reimbursement benefit have a heavy administrative duty of pre-paying costs, justifying, and submitting them for reimbursement to an insurance company. Those with an indemnity benefit will receive a monthly check to be used as needed once a doctor certifies that your parent needs long term care.
Medicaid is a program designed to support people with low income. If your parents truly have no way of covering the costs of care and their assets are spent all the way down, Medicaid can step in and cover costs of care. Bear in mind that the facility selection may be limited for those needing this option.
If you think that you may need to care for aging parents, it is important to communicate early about expectations, understand costs of care, and plan for how to secure funds.
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