Dealing With Long Term Care & Expenses In Your Later Years

by Silicon Valley Blogger on 2012-02-264

None of us really want to think about the idea of getting older. But it’s something we can’t escape, and ironically enough, the best time to start thinking about planning for that time is when we are younger and healthier.

Have you ever thought about what to do when you’re older or how to deal with the care of loved ones once they’re older? There are a lot of ways to deal with these matters, but the sooner we think about them, the more resources we’ll have to ensure that it all goes according to plan. If you reach retirement with no cash or support then how will you cope or be able to receive the care you need?

Tips For Dealing With Long Term Care, Costs & Expenses

A good number of us will be relying on social security and Medicare once we’re eligible. And a lot of us will be cracking open our 401Ks, IRAs, pension plans and other retirement accounts. But if resources are insufficient, what then? Again, if we’re younger, we’ve got some time to figure a few things out. Let’s go over some ideas for dealing with the costs that seniors face:

#1 Prioritize saving for retirement.
Those over the age of 50 can actually take advantage of retirement catch up provisions and extra contributions for their tax advantaged retirement accounts, but if you’re still young and able, then you should work on maximizing your savings, even if retirement is a distant goal. It’s common enough for something to happen that could end up being impossible to solve unless we have the cash available to deal with it. Saving for those years way into the future should be made a priority, particularly as we don’t know what could be in store. And don’t rely on a backup plan or the promise of an inheritance from a favorite relative either. You never know what could happen down the road as there are no guarantees in life and especially, in matters of estate planning.

So make sure you’ve got dedicated retirement accounts or ways to invest money that won’t tempt you into withdrawing your investments for any other reason. Save and make your money work for you as early as you can, and figure out ways to grow what you already have. But don’t make foolish investment decisions either — start right now and read up on the best ways to invest, save and cut costs. Better yet, try to develop habits today that you can carry into the future. Remember that procrastination can literally cost you money.

Other things you can consider over time: you could look into setting up a variable annuity if you need more income down the road than what’s provided by your retirement accounts. You should also think about turning to more conservative investments and cutting down on investment risks as you age. Here is more retirement advice for “late start investors”.

#2 What about long term care insurance?
There are other ways you can cover your future expenses in case you’re short on savings. Long term care insurance can be an option if you really want to ensure you’ll be looked after if you need care in your old age. Insurance is a way to safeguard your future. You may find that you can stay in your own home but only if you have access to help on a daily basis. This insurance plan can make it happen for you.

This form of coverage will cover expenses and costs beyond what is covered by Medicare, Medicaid or even ordinary medical insurance, ranging from nursing home care and assisted living to paying for live-in or private caregivers and nurses. Basically, like any other kind of insurance, it’s most cost-efficient the earlier you make these preparations. The recommendation is that you should consider getting such insurance by age 50, as the insurance premiums are more affordable at that time. Picking up a policy while you’re still fit can also avoid any financial complications that may crop up (e.g. insurance can be an issue if you apply with a preexisting condition).

#3 Find out if a reverse mortgage will work for you.
This is a solution if you’ve built up equity in your home. If your mortgage is fully paid off, then your house is a major asset you can work with. So how does this mechanism work? Reverse mortgages are loans that are extended to homeowners who are age 62 and older. The loan converts the current equity in the home into additional income. It can work in one of two ways. Part of the equity in your home can be given to you as a lump sum, or you can use it as monthly payments towards ongoing care or support costs. Today, some reverse mortgages even offer the proceeds as a credit line and thus, can be a lifesaver to a homeowner who needs cash.

The payments that a homeowner receives depend on how much they owe and the amount of equity left in the house. Proceeds from reverse mortgages can be used for home repairs, medical bills, everyday expenses — whatever the senior needs or wants. Seniors must continue to budget for their home insurance and taxes though, so they should weigh things out before taking the plunge.

The reverse mortgage continues for as long as the senior is alive and occupying the home as their primary residence. The mortgage matures when the borrower sells the home or dies. Even if the mortgage exceeds the value of the home, it continues until the circumstances of maturity.

We’ve discussed the bright side of turning to a reverse annuity mortgage as an income channel. So let’s look into the disadvantages, of which there are several. In some instances, you’ll face certain fees which are payable up front, including appraisals, closing costs and home insurance. Fees are typically higher when you deal with a private lender as opposed to government reverse mortgages. Also, second and third mortgages may need to be paid off before seniors can qualify for a reverse mortgage (it would depend on the lender). If the value of the home drops, the estate might be liable to pay the lender the difference between its selling price and the amount due. Be aware as well, that homeowners depending on public assistance programs may not continue to qualify for these programs based on the increased income that is received from a reverse mortgage.

#4 Downsize and move somewhere where it’s much more affordable.
This is a popular plan that most would be retirees adopt. Besides downsizing, you can also think outside the box when it comes to raising cash or conserving your money. You may be surprised to discover that you can live on a lot less simply by moving to a different location. It may be hard for seniors to consider this alternative especially if they have to leave familiar territory only to move to a place where they have no current ties, but it’s actually worked out well for a lot of folks. More adventurous and flexible retirees will find such a decision exhilarating, as there are great places all over the world that you can reside in that may actually prove quite enjoyable while being extremely affordable at the same time. I know a lot of people who’ve made this work out for them and who’ve been able to age gracefully in places with lower costs for care. Here’s a list of great places you can retire to.

#5 Would you live with younger relations?
If you’ve got a big happy family, then this could be an option, but a lot of other people aren’t really prepared to go down this route. People who are used to being independent aren’t going to be thrilled by this solution, but it’s one alternative for those who have limited options. Many cultures have such arrangements by default, and depending on how well you get along with your children, it can literally be a lifesaver. Perhaps you should remind your boomerang kids about this one day 😉 .

In reality, you may decide to focus on more than one of these methods for helping to safeguard your future. It’s easy to dismiss the need for care when you are still young and healthy. But getting the right things in place as soon as possible will provide peace of mind now — and the right support later on when you need it. Doesn’t that sound like the best plan?

Copyright © 2012 The Digerati Life. All Rights Reserved.

{ 4 comments… read them below or add one }

krantcents February 27, 2012 at 6:49 pm

I bought Long Term Care insurance a few years ago because I saw my mother use up her savings in her latter years. She lived until three weeks short of 99 years old. I max out my 403B, IRA and Roth IRA. I downsized 214 years ago.

Kosmo @ The Soap Boxers February 28, 2012 at 8:24 am

“I downsized 214 years ago.”

Wow. How old are you, exactly? 🙂

I’m going to be one of those people they drag kicking and screaming into a home. I hate being dependent on anything for anyone.

Silicon Valley Blogger February 28, 2012 at 10:29 am

Oh wow, did not catch that remark on downsizing from Krantcents! Nah, he can’t be that ancient! 😉 From my observations, I believe that your family upbringing and culture have a big influence on how you decide to receive care in your older age. For example, Asian cultures are less amenable to long term care situations as described above — many families I know will rather invest in an in-law unit or annexed apartment or extra room for an elderly parent than look into a retirement home. But as mentioned, doing a combo of things is probably what a lot of us will end up doing. I am partial to #4!

Yazmin March 1, 2012 at 3:22 pm

Our family will do a combination of #4 and #5. Retirement homes are not an option for my parents so I know I’m going to have to take care of them.

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