Paying For Eldercare Doesn’t Have to Be a Nightmare

The Squeeze

• Using a combination of personal funds, government programs and private financing can help cover eldercare for your parents.
• Talking about your parent’s financial resources—and what they can afford to pay for eldercare—is a savvy move.
• Keep in mind that sabotaging your retirement savings should never be part of the plan. Social services exist for the elderly, but you can’t take loans for retirement.

Thinking about how to assist your parents as they get older is no picnic. Coupled with the emotional worries and fears about your parents’ decline is, of course, the looming financial question: How are we going to pay for this? 

The costs for eldercare, after all, can be astronomical. According to MetLife, professional assisted-living care runs about $47,000 a year, and a private room in a nursing home can cost $87,000 a year. (And before you assume that taking care of your parents yourself is financially viable, consider that the average lost wages for family caregivers of elderly loved ones add up to $143,000, not counting the loss of retirement and Social Security benefits down the line.) 

One thing is clear: However you and your parents plan to pay for their care, you can’t go into this situation blind.

Have the money talk 

Even if decisions about paying for your parents’ eldercare are a bit down the line, your family can benefit from having conversations about their finances sooner rather than later, says Jennifer L. FitzPatrick, founder of Jenerations Health and author of Cruising Through Caregiving.  

After all, you’ll likely need to have not one but rather many talks with your parents about their wishes and their financial resources. “You have to be patient,” says FitzPatrick. “You might have to have several conversations and bring it up at different times.”

Fitzpatrick advises bridging the formidable silence in which the Silent Generation and Baby Boomers cloak taboo money conversations with a simple technique: Use any natural opening to the conversation that you can find. You might, for example, bring up current events in healthcare as a segue or talk about shared acquaintances who have hired home help or moved into assisted living. Talk about your kids and how you’d never want to burden them with worries about your care. (Subtle? No. But quite possibly effective.) 

Such a conversation about what your parents wish — do they want to stay home? Would they want an aide? Would they want help from family?— can naturally flow into a financial chat about what is feasible, FitzPatrick says. “Emphasize that you’re not trying to take over; it’s just about planning,” she advises.

Take a deep dive into your finances

Part of planning for your parents’ future will require some soul-searching on your part — as well as crunching the numbers — to truly understand your financial situation and how you can (or cannot) contribute to help your parents. For example, you might already be juggling retirement savings, saving for your kids’ college education, your own student loan debt, and other financial priorities. What can you afford to put towards your parent’s care?

Budget cuts can help: whittling down housing costs or getting rid of a second car, for example, could free up some money to put towards savings. However, one sacrifice that should never be made is your own retirement. Sabotaging your retirement for your parent’s care “can have a spinoff effect for years to come,” says FitzPatrick. 

Examine your options

Funding for eldercare typically comes from a few sources: personal funds (i.e., out-of-pocket spending by your parents or the family); government programs, such as Medicare and Medicaid; and private financing.

The first two options — personal funds and government programs — are in many ways set by the time your parents are elderly. Your parents’ resources, such as pension funds, retirement accounts, home equity, and investments, comprise the personal funds they will have to spend on things like home care, aides, private nurses, or long-term care in a nursing home setting. You and your family will have to determine what, if any, financial contribution you can add to that figure. 

Your parent’s overall financial picture also directly affects the cost of Medicare, which provides health coverage for people over 65, and whether or not they are eligible for Medicaid, which provides health coverage for low-income people of all ages. Expert tip: Signing up for Medicare and Medicaid at the age of eligibility — at age 65 — is essential to avoid paying fees and higher premiums for monthly coverage and prescription drugs, even if your parents don’t plan to use the coverage right away (say, if they’re still working and covered by an employer).

While Medicare provides millions of Americans with health care coverage, there are some important exceptions to that coverage: Medicare will not cover ongoing personal care at home, assisted living, or long-term care in a nursing home or similar facility. Given the price tags for those services, that’s a hugely important consideration when determining what type of eldercare your parents will be able to afford. (Medicaid, however, may cover long-term care for people with limited income.)

Medicare and Medicaid, while covering various services, are also not free. Your parents may need to pay monthly premiums, prescription drug premiums, co-insurance, and deductibles, as well as out-of-pocket costs. Since government programs covering the elderly are complex and vary state-by-state, a good starting point is to use the benefitscheckup.org website from the National Council on Aging. Its free tool can help point you to federal and state benefits.

Private financing is another means of paying for eldercare, and one of the most beneficial financing options could be long-term care insurance. While coverage varies by plan, insurance companies sell policies that cover nursing home care, full-time care at home, palliative and hospice care. 

Costs for these policies increase for older or unwell people, so that money talk you have with your parents? It could pay off down the line if they sign up for long-term insurance now. Even if they are a bit older, they could still get insurance, so exploring these options could be beneficial overall, says FitzPatrick. “It might not be too late,” she says. “It might be expensive, but you could still qualify.”

Other options include reverse mortgages for seniors — a type of home loan in which they pull cash from the value of their home — and life insurance policies with what is known as an accelerated death benefit, which provide money for those living in a full-time facility or requiring long-term care, or who are terminally ill. For more on private financing options for elder care, visit the National Institutes for Health website.

Lastly, remember that ultimately, as much as you want to help your parents, these decisions come down to them. You can’t force an adult to let you help or push them into a living situation they don’t prefer. “Your older loved one is a grown-up,” says FitzPatrick. “If they don’t have a cognitive or mental health condition, then they get to decide. And we have to accept that they have to let us in — it’s their decision if they want to talk about money or not.”