A New Way to Fund Senior Care
Did you know that 70% of Americans will need some kind of senior care during their lifetime? Despite this staggering statistic, only 3% of Americans make advance financial plans for senior care needs.
Many people incorrectly assume that medical insurance or Medicare will cover in-home or nursing home care, but that care is limited to certain medical services. The annual costs associated with senior care start around $30,000 for in-home care3 and range up to $94,000 for Nursing Home Care4. These estimations do not include therapy, rehabilitation or medication.
The Senior Care Challenge
Very few retirees consider long-term healthcare costs as part of their retirement budget. Many assume that Medicare will help cover long-term in-home or nursing home care. And while Medicare may offer limited care after a surgery or hospital stay, that medical care scope is limited to a certain time period, and coverage is restricted to certain services.
According to a 2015 study by Merrill Lynch, only 19% of retirees understand their Medicare benefits. This is one of many reasons why seniors may not budget for long-term care costs.
One of the greatest challenges facing aging individuals is the ability to remain at home or live independently. Over time, seemingly small health issues can arise that require care or increase the likelihood of accidents. The danger of accidents is greatest for individuals who live alone, but couples also face challenges. Even if a healthy spouse can step in to offer assistance, studies have shown that the caregiving spouse will wear out emotionally over time, or he/she may develop his/her own medical condition.
In-home care can provide assistance to seniors who want to age in place, but it is costly. Most retirees leverage one of the following options for long term care…
- Pay out of pocket for professional care: The average cost for in-home care in South Carolina is $20 per hour with a 4 hour minimum required. This type of service is generally provided by licensed private companies which maintain a standard of care for their employees, who are trained and qualified to provide help in the home. The patient or family pay for this care out of pocket.
- Accept help from a family member: Family members can help provide care, but work obligations, personal obligations to their immediate family members and/or the fact that they do not live close by may limit their availability. In most cases, family members can help to supplement senior care, but it cannot completely replace professional care.
- Medicaid: Medicaid is a needs-based benefit. Income and existing assets must meet certain standards to qualify. Most states have very limited financial resources for in-home care. There is generally a long list of applicants for this service and it can take months or years to obtain benefits. The application process prevents Medicaid from being a suitable solution for immediate needs.
- Veterans Benefits: There are also some benefits available to veterans and their spouses through the Veterans Administration’s Aid and Attendance Program. These benefits are for Veterans who meet specific criteria set by the Veteran’s Administration. The Veteran must qualify based on income and existing assets, as well as designated levels of military service. The timeline to qualify and receive benefits can be a lengthy process, so this too is generally an inadequate solution for immediate needs.
For seniors who do not meet or are not quickly approved for Medicaid or veterans benefits, a reverse mortgage is often a viable option.
Funding Senior Care with a Reverse Mortgage
When reverse mortgages were first created in the 1980s during the Reagan Administration, one of the intended uses for these loans was to pay for long-term health care. According to a 2005 study by The National Council on Aging, “nearly half of older homeowners would be candidates for using a reverse mortgage for long-term care.” The full study, Use your home to Stay at Home, is available online.
Homeowners must be 62 or older to qualify for a reverse mortgage, and the amount an individual can receive is based on…
- The appraised value of his/her home
- The age of the younger borrower on title
- The current interest rate.
Qualifying seniors can leverage a reverse mortgage in some unique ways in order to help pay for the care they need while remaining in the home that they love…
- A Reverse Mortgage Standby Line of Credit can be set up in advance—before care is needed—so that funding is at-the-ready.
- Unlike a traditional home equity line of credit (HELOC), the unused portion of the reverse mortgage line of credit grows over time, allowing access to more funds as the borrower ages. And the line cannot be reduced or revoked by the lender, as long as the terms of the loan are met—ensuring the funds will be there when needed.
- The homeowner retains ownership of his/her home, and there are no monthly mortgage payments for as long as the borrower lives there. The homeowner remains responsible for keeping current with property taxes, required insurance and home maintenance. The loan will only need to be repaid if the borrower does not meet these loan obligations.
- Proceeds are tax-free. Consult with a tax professional to learn more.
- In-home care services that are funded by a Standby Line of Credit can reduce the need for expensive nursing homes, and improve quality of care.
- A Standby Line of Credit can be used to gradually increase the scope of senior care services as needed—from help with household chores, to 24-hour nursing care.
The proper name for a reverse mortgage is Home Equity Conversion Mortgage. It is a beneficial tool that provides a way to convert home equity into cash that can be used to supplement a fixed retirement income. Although a reverse mortgage may not be right for every senior, this retirement funding tool has successfully helped many to obtain the care they need while remaining at home.
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*Source: American Association for Long-Term Care Insurance, www.aaltci.org/long-term-care-insurance/learning-center/fast-facts.php
**Source: U.S. Department of Health and Human Services, www.longtermcare.gov/the-basics/who-needs-care
1. Source: American Association for Long-Term Care Insurance, www.aaltci.org/long-term-care-insurance/learning-center/fast-facts.php
2. Source: U.S. Department of Health and Human Services, www.longtermcare.gov/the-basics/who-needs-care
3. Source: U.S. Department of Health and Human Services, www. longtermcare.gov/costs-how-to-pay/what-is-covered-by-health-disability-insurance
4. Source: John Hancock’s 2013 Cost of Care Survey