The National Council on Aging (NCOA) estimates that 45% of older adults lack the income to support their needs. (1) With the average cost of assisted living clocking in at $5,190 per month, (2) many seniors are in a bind — and relying on their families for support.
Imagine David, 55, trying to navigate finding care for his father, Frank, 83. Though Frank was living independently until now, his health has been slipping in the last few months and his doctor says he’ll likely need specialty care — costing roughly $7,500 a month.
On paper, Frank is in a solid financial position to weather life’s curveballs. He gets $4,000 per month from Social Security and a pension, and he owns a tidy little ranch worth $300,000 with zero debt. But even in this “good” position, there’s a $3,500 gap to fill that could quickly snowball.
David loves his dad and wants him to have the best care imaginable, but he’s not sure how that’s possible. Here’s our advice for navigating the costs of assisted living and elder care.
After crunching the numbers, the most obvious strategy is to sell Frank’s home. The money from a home sale is the most realistic way to cover the monthly shortfall for years to come.
However, that doesn’t mean plopping $300,000 into a checking account is the end of the story.
For greater security, David might consider investing the $300,000 in a lump-sum annuity that immediately starts paying a monthly income. Plans like a single premium immediate annuity (SPIA) could provide a more consistent cash flow for the rest of Frank’s life.
If Frank has any other retirement accounts (e.g., an IRA), it’s also possible to convert some or all of these funds into an immediate annuity.
But let’s say Frank isn’t ready to sell right now. There is another way to tap into that home equity while still living at home through a reverse mortgage loan. While not for everyone, a reverse mortgage literally buys time before making a permanent move.
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Then there’s Medicaid, which might not be as out of reach as David thinks.
Medicaid rules vary by state, but some assets like property don’t count against eligibility. The trick is understanding how to “spend down” assets legally, using funds to pay for legitimate care expenses until qualifying for coverage.
An elder law attorney might be able to help in this case to protect Frank’s assets while staying compliant.
After looking at all of these options, let’s say that David still feels emotionally obligated to dip into his own savings. Is that wrong?
While that’s understandable from an emotional perspective, it’s often not a wise financial move.
Supporting a parent doesn’t always mean paying their bills, especially if it puts you in debt. Instead, David should focus on other options, as well as managing logistics, helping with paperwork, and ensuring the quality of care remains high.
This hypothetical situation highlights a harsh yet common experience for modern American families: Even when you’ve done everything right financially, aging can cost more than anticipated.
Moreover, long-term care can’t be an afterthought as longevity becomes the norm. The average life expectancy in the U.S. is now 78.4 years, (3) and many seniors plan for 30 years of retirement living.
Setting up a health savings account (HSA) or buying long-term care insurance in your 50s or early 60s could unlock much-needed liquidity during pivotal life events. At the very least, running the numbers early can provide clarity on the options available in the event of a major health-related transition.
Conversations about aging and finances can be sensitive, but it’s better to discuss them in good health than to wait for a full-blown crisis.
For adult children, set realistic and firm financial boundaries before contributing to a parent’s care. That may sound cold, but helping parents doesn’t mean sacrificing your own financial security — and your own retirement savings.
And if managing finances feels too overwhelming, it may be time to consult a financial advisor for a clear-headed perspective.
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
National Council on Aging (NCOA) (1); A Place for Mom (2); Peterson-KFF (3).
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
