Calculating the Cost of Aging

Determining how much your parent can afford is not too difficult and is of the utmost importance. Left undone, life decisions can be made on false financial grounds and result in running out of money too early.

An aging parent takes a serious toll, not only emotionally, but financially. When you notice your parent is not as dexterous or as capable as they used to be, it’s time to have a serious conversation about how to best take care of them. Thoughtful financial planning can help you put your parent in the best possible position for the rest of their life, and it’s best to start before there’s a serious need. Here’s what your conversation should cover.

Calculating income

As you would when making any budget, you should start by determining what resources your parent has to spend on a monthly basis. Sit down to review their accounts and see how much they have saved and whether they’re benefitting from a retirement plan or government assistance.

Pensions are rare these days, but your parent could be receiving one. Pensions can be disbursed either via monthly payments or in a lump sum, a decision your parent may have already made. If they didn’t, discuss whether a lump sum would be a wise choice or if a steady payment stream would be more advantageous. And while pensions are rare, 401(k) plans are still common and it’s likely that your parent has either a 401(k), a Roth IRA, or another type of defined contribution retirement plan through their employer.

As long as your parent was born after 1929, is at least 62 years old, and worked for at least ten years, they are eligible for Social Security benefits. If they have delayed claiming until 70, they’re likely to get larger payments now. You can apply on The Social Security Administration website or at your local Social Security office. However, the average monthly Social Security payout in 2018 was just over $1,400 a month, so it’s best to see it as a retirement supplement.

If all of these options aren’t enough, you should determine how much you’re willing and able to contribute. If you have siblings, you should loop them into this conversation and see if they can offer any support. Though helping an aging parent financially can be a difficult choice to make, you may be eligible for tax benefits. If you’re supporting an elderly parent, you may be able to claim them as a dependent as well as deducting any medical expenses.

The cost of living

Once you know how much you can afford, it’s time to decide where your parent should live. Most seniors (90%) prefer to grow old in their own homes, but that may not be the best choice for their health or their finances. Assuming you and their doctors believe it’d be safe for them to age in place, it’s time to consider if it’d be prudent financially. Surprisingly, the cost of staying in their own home could significantly outweigh that of moving them to assisted living or a nursing home. There are some helpful online tools that can help you calculate which is a better financial option.

It’s important to remember that staying in their own home will likely mean that significant assistance and maintenance will have to be performed by a third party. Whether you help out or you hire a healthcare worker, an investment of either time or money will be required. Additionally, home modifications will likely need to be undertaken to make the home senior-friendly.

If it makes sense for them to move to a nursing home or an assisted living facility, the cost can still be significant. The average cost for a private room in a nursing home is nearly $8,000 a month. Any facility for your parent should also be thoroughly vetted. Medicare’s website offers a tool for comparing nursing homes, and each state offers a Long-Term Care Ombudsman Program that can assist you in choosing the best place for your parent. Once you determine the best choice for your parent, it’s time to look into the many ways to cover the cost of long-term care.

The cost of care

Medicaid can be a huge help covering the costs of aging. Medicaid eligibility and benefits are complex and differ widely from state to state, as it’s a joint program between state and federal governments. However, in the broadest possible terms, if your parent’s monthly income is $3,000 or less and their assets are limited, they are likely to qualify. Even if their assets exceed the limit, they can gift the money or put it in a Medicaid annuity to become eligible for Medicaid without first exhausting their resources.

Seniors often require multiple medications, and with the price of prescription drugs skyrocketing, that can constitute an enormous financial burden. However, there are many government programs that help with this specific cost. Several states offer state pharmaceutical assistance programs (SPAPs). Patient assistant programs (PAPs) are available through some drug manufacturers for seniors and others who are having difficulty paying for medication. Eligibility for SPAPs and PAPs differs from state to state, and company to company, so visit Medicare’s website to see if your state offers pharmaceutical assistance, and visit the National Council on Aging’s website to determine if your parent would be eligible for PAPs or other benefit programs.

Long-term care insurance is an excellent option to consider if your parent’s income or assets are likely to disqualify them from Medicaid and other government plans. Policies will be less expensive the younger and healthier your parent is, but the premiums are likely to increase over time. However, these policies can cover a nursing home or assisted living, home care and modification, and more. The AARP recommends finding an insurance company through your state insurance department and researching their reputation and stability before investing in a policy. Additionally, be confident that your parent will be able to cover their insurance payments for the long run. Nothing will be gained and in fact, much can be lost if your parent cannot afford their premiums.

Adding it up

Once you’ve determined what your parent’s resources are, the best place for them to live, and what kind of assistance they’re eligible for, you will have a good starting place. But remember that over time, it’s likely that their financial resources and needs will change. Revisit their budget and plans regularly to make sure that your parent is still in the best situation for them. For instance, you may have decided that they could age in place with some home modifications and a part-time home aide, but when you revisit the topic in two years, it may make more sense either financially or medically to move them to assisted living. But by planning ahead and checking in to make sure your plan is still sufficient, your parent can enjoy their old age in comfort.

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