Financial Planning in the Face of Dementia

A caregiver’s point of view.

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Over the past several decades, life expectancy has been increasing, and it is now longer than ever before. According to the Social Security Administration, an average man reaching age 65 today can expect to live until age 84, while a woman turning 65 today can expect to live, on average, until age 86½.

With this in mind, we need to make our assets—and in turn, our retirement income—last longer. In addition to paying for added years of living expenses, we need to remember that healthcare costs will also increase as we age. It is estimated that a 65-year-old couple retiring in 2019 will need roughly $285,000 just for healthcare expenses—and this figure doesn’t even include the costs of a long-term care need.

Care can be particularly expensive for those who suffer from dementia. While those with dementia are oftentimes physically healthy, an individual can, on average, live for four to eight years after a dementia diagnosis. In some cases, they can survive for 15 to 20 years.

While dementia takes a horrible toll on the affected individual, it can also take a toll on the loved ones who provide their care. Many Baby Boomers today are having to face caring for an aging loved one, and as the Boomer generation also ages, we can expect an increase in caregiver roles.

Unfortunately, being a caregiver can inflict a number of physical, mental, social, emotional, and financial consequences. It can be time-consuming, and even require that the caregiver take time off from work. This, in turn, results in lost income.

In addition, while most people would prefer to care for a loved one at home, “caregiver burnout” can oftentimes occur. This is a state of physical, emotional, and mental exhaustion that can be accompanied by a change in attitude, fatigue, stress, anxiety, and depression.

Ultimately, an aging loved one may need to move to a skilled-nursing or assisted-living facility. And according to Genworth’s 2018 Cost of Care Survey, the average annual cost of an assisted-living facility in the U.S. is $48,000. A skilled-nursing facility is even higher, with an average yearly cost of more than $89,000 for a semi-private room.

Although there is still no way to cure dementia, there are ways to plan ahead for a potential caregiving need. And by having a good, solid financial strategy in place, it can open up a wide range of options for both the patient and the care provider.

The Cost of Being a Caregiver

Caregiving can take on a number of different forms. For example, it often starts out by simply assisting a spouse or loved one with tasks such as paying bills, scheduling maintenance workers, or driving to doctor appointments.

However, as the dementia progresses, it can require much more of a time commitment and financial support from the care provider. In fact, according to AARP’s Family Caregiving and Out-of-Pocket Costs report, caregivers spend an average of nearly $7,000 per year caring for a cognitively or physically disabled loved one.

For many caregivers, in order to cover these added costs, it is necessary to pare back on their own expenses, which can often include cutting out a retirement-savings plan. This, in turn, can cause substantial short- and long-term problems for the care provider.

How to Plan Ahead and Control Costs

Although most people will need some type of caregiving, there are ways to control both the time and the monetary commitments while at the same time ensuring that a loved one receives the best care possible.

Today’s advanced technology can provide some solutions for care providers. For instance, in addition to the Life Alert pendant (which is often perceived as being only for “old people”), devices like the Apple Watch are more stylish, can track the wearer, and even send caregivers an alert signal in case of an emergency.

Many of the smartphones in use today provide tracking features that a caregiver can access to determine where their loved one is at any time. Similarly, installing in-home security monitors like the Nest camera can help caregivers ensure that their loved one is okay without having to physically be at the same location. Going this route can save a significant amount of time and worry for both the caregiver and their loved ones.

In addition, depending on the policy, there are some long-term care insurance options that allow you to use the benefit for any need—including paying for monitoring services for the insured.

Other time-saving strategies can include the use of InstaCart for ordering and sending groceries to a loved one’s home without having to actually go to the store. And, if a loved one with cognitive issues is no longer able to
drive, relying on services like Uber Eats and Favor can ensure that food is delivered right
to their door.

These types of services can be particularly beneficial if an individual and their caregiver do not live close to each other. This also helps the caregiver delegate some tasks. Of course, the cost of these services can add up, but they are at least available should the caregiver need assistance with errands.

Insurance Coverage for Care and Related Needs

One of the better ways to plan ahead for the cost of long-term care is to purchase long-term care insurance. Today’s long-term care insurance policies will typically provide coverage for both in-home and facility-care needs. Many of these plans also offer benefits for non-professional care providers such as spouses, family, or friends.

There are several types of long-term care policies available on the market today. These can include plans that pay out benefits based on either a reimbursement or an indemnity method.

For instance, a reimbursement-type policy will reimburse the insured for the cost of qualified care, up to a certain daily or monthly dollar amount. Alternatively, an indemnity-type policy will provide a set dollar amount of benefits (based on the daily or monthly figure that is stipulated in the plan), regardless of how much the insured’s care actually costs. Indemnity-type policies offer more flexibility because once one qualifies for long-term care and has satisfied the elimination period (deductible), benefits will be paid out. There is no need to take funds out of pocket first, apply for reimbursement, or wait for approval from the insurance company.

Long-term care insurance plans may also include a respite-care benefit option. This means that care can be provided, and paid for, over a certain number of days or weeks in a long-term care facility while an individual’s caregiver takes a break.

In addition to stand-alone long-term care insurance coverage, there are other types of “hybrid” plans that could be considered. For example, some insurance carriers offer a combination life insurance and long-term care plan that will pay out benefits if the insured requires them for care expenses. If no care is needed, a life-insurance benefit will be paid to a beneficiary upon the insured’s passing.

It is important to note that in order to qualify for long-term care insurance, the insured must be in relatively good health at the time they apply for the coverage. In other words, an individual who is already showing signs of dementia may not be a good candidate for this type of insurance.

Depending on the benefits that are being considered, long-term care insurance can be costly. Even so, this type of policy can end up saving tens of thousands of dollars on future care expenses. With that in mind, it could be well worth it for family members or other loved ones to assist with paying the premiums.

Policies are also available that offer a discount for married couples (both same-sex and opposite-sex), as well as for domestic partners.

Controlling the Cost

of Future Long-Term Care Needs

Caring for a loved one with dementia can be both emotionally and financially draining. With the probability that a spouse, parent, or other loved one will need long-term care in the future, it makes sense to put a plan in place now that can help ensure that they—and you—won’t have to dip into savings or other assets to pay the tab.

Because there are many different options for controlling the cost of a long-term care situation, it is better to work with a financial professional who is experienced in this
area, and who can suggest an appropriate
plan for you.

This article appears in the June 2019 edition of OutSmart magazine.


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Grace S. Yung

Grace S. Yung, CFP, is a certified financial planner practitioner with experience in helping domestic partners plan their finances since 1994. She is a principal at Midtown Financial LLC in Houston and was recognized as a “Five-Star Wealth Manager” in the September 2017 issue of Texas Monthly.

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