With the costs for caregiving services rising, sometimes steeply, it can be worthwhile to cast a wide net when seeking resources that can help cover these costs.
With inflation increasing the cost of living, a single source of income such as social security is often no longer able to pay these costs.
Besides taking steps such as looking for tax breaks, there are a number of other sources for caregiving funds, including overlooked senior benefits.
Five of the more commonly used sources of funds for covering costs associated with caregiving services are detailed below.
Originally designed as a method of enabling the elderly to remain in their homes, a reverse mortgage loan allows homeowners over a certain age to tap their home equity to generate funds to pay for their expenses, including caregiving services.
A reverse mortgage typically works best for seniors who have significant equity in their homes and want to use some of that equity to receive cash, either as a lump sum or regular payments, typically monthly.
Each payment made by the lender under a reverse mortgage increases the amount owed under the reverse mortgage. These monthly payments increase the balance which must be paid to the lender either by the senior or by his or her heirs after they pass, or the bank will own the house.
This link from the U.S. Department of Housing and Urban Development allows you to search for reverse mortgage lenders approved by the Federal Housing Administration (FHA). There are different types of reverse mortgages.
Reverse mortgages insured by the FHA are known as home equity conversion mortgages (HECM). A HECM converts the equity in the house into a payment stream from the reverse mortgage.
To qualify for a reverse mortgage, seniors must typically meet the following requirements:
Homeowners can also pull equity out of their homes through a home equity loan, or HELOC, which they then make monthly payments to repay. These loans are typically taken on a borrower’s primary residence, often in the form of a line of credit, and can be used for a variety of purposes, including home improvement or paying for general expenses such as caregiving.
Generally, a borrower receives the borrowed funds in a lump sum, unless a line of credit is being used, and must pay a home equity loan back in a few years, unlike a mortgage which can extend for up to 30 years.
This option typically works best when there is significant home equity in the house, otherwise, combined payments on the loan and the mortgage may be beyond the ability of the borrower to pay.
Most states allow Medicaid recipients to hire a family member as a paid caregiver through a Medicaid waiver program: Medicaid waiver self-directed long-term services and supports (LTSS) programs.
States offer a variety of self-directed caregiving options, including self-directed personal assistant services, which enable participants to choose and pay their providers.
These Home & Community-Based Services (HCBS) fall under the waiver program. To determine if a person qualifies for Medicaid, contact your state’s Medicaid office.
Long-term care insurance can be an effective way to cover the costs associated with care over and above hospital treatment. Not every long-term care policy will cover long-term care, however, some will.
The downside to long-term care policies is that most of them don’t allow purchases after a certain age. As a result, these policies must generally be purchased when a person is younger to be an effective option for covering caregiving costs.
Annuities can be a good option for paying for caregiving costs because they enable purchasers to choose income options that can provide for long-term, or even lifetime, income payouts.
Sums received from annuities are not considered to be assets when a senior applies for Medicaid, and income received from them is not restricted—meaning it can be used for any purpose including paying caregiving costs.
Annuities typically enable you to grow the funds invested in the annuity over time on a tax-deferred basis and then offer a variety of options for pulling income from the contract when the time comes. This income might be for a period certain, such as 10 or 20 years, or for the rest of the senior’s life.
Either way, this income can prove very helpful in paying for caregiving costs.
Joshua Iversen is a Registered Investment Advisor Representative and Senior Planning Specialist with 30+ years of experience. As President and Chief Investment Officer of Santa Ana-based Syzygy Financial LLC, he helps seniors deal with all financial and healthcare aspects of the senior experience, including Social Security claiming strategies, Medicare, Medigap, long-term care, and overall financial planning strategy.
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