Garland Law Offices, P.A.

How Much Will Long-Term Care Cost?

“Many people are frightened of long-term care costs—for good reason.”

The recent article from MarketWatch, “This is how much long-term care could cost you, and don’t expect Medicare to help,” reports that most people over 65 will eventually need help with daily living tasks, like bathing, eating, or dressing. Men will need assistance for an average of 2.2 years, and women will need it for 3.7 years, according to the U.S. Department of Health and Human Services’ Administration on Aging.

Many will rely on unpaid care from spouses or children, but over a third will spend time in a nursing home, where the median annual cost of a private room is now more than $100,000, according to insurer Genworth’s 2018 Cost of Care Survey. Four out of ten will choose paid care at home; the median annual cost of a home health aide is more than $50,000. Finally, more than 50% of people over 65 will incur long-term care costs, and 15% will incur more than $250,000 in costs, according to a study by Vanguard Research and Mercer Health and Benefits.

Note that Medicare and private health insurance typically don’t cover these “custodial” expenses. This means that such costs can quickly deplete the $126,000 median retirement savings for people age 65 to 74. People who exhaust their savings could wind up on Medicaid, the government health program for the indigent that pays for about half of all nursing home and custodial care.

People who live alone, are in poor health, or who have a family history of chronic conditions are more likely to require long-term care. Women face special risks, since they typically outlive their husbands and, as a result, may not have anyone to provide them with unpaid care. If husbands require paid care that erases all of the couple’s savings, women could have years or even decades of living on nothing but Social Security.

The earlier you start planning, the more choice and control you’ll have. Let’s look at some of the options:

Long-term care insurance. The average annual premium for a 55-year-old couple was $3,050 in 2019, according to the American Association for Long-Term Care Insurance. Premiums are higher for older people, and those with chronic conditions might not be eligible. Policies typically cover part of long-term care costs for a defined period, like three years.

Hybrid long-term care insurance. With life insurance or annuities with long-term care benefits, money that isn’t used for long-term care can be left to your heirs. These products typically require you to commit large sums or are paid in installments over 5 to 10 years, although some now have “lifetime pay” options.

Home equity. People who move permanently into a nursing home may be able to sell their houses to help fund the care. Reverse mortgages may be an option, if one member of a couple remains in the home. This type of loan lets them use their home equity. However, it must be repaid if the owners die, sold, or they must move out.

Contingency reserve. People with a great deal of investments could plan on using some of those assets for long-term care. Their investments can produce income, until there’s a need for long-term care, and then can be sold to pay for a nursing home or home health aide.

Medicaid spend-down. Those who don’t have much saved or who face a catastrophic long-term care cost that cleans out their entire savings, could wind up applying for Medicaid. Ask an elder law attorney about ways to protect, at least some assets for your spouse.

Reference: MarketWatch (July 19, 2019) “This is how much long-term care could cost you, and don’t expect Medicare to help”

Tackling the Myths Surrounding Reverse Mortgages

“There are many misconceptions surrounding reverse mortgages.”

TC Palm’s recent article, “Myths vs. realities surrounding reverse mortgages,” highlights some of the misunderstandings and misinformation that commonly come up when talking about reverse mortgages.

Myth # 1: My lender will own our home. No, you will keep the title and ownership of the home during the life of the loan. You can also sell your home at any time. The loan won’t become due  as long as you keep satisfying the loan obligations, including living in the home, maintaining the home according to FHA requirements and paying property taxes and homeowner's insurance.

Myth # 2: The home has to be free and clear of existing mortgages. This is also not true. Many borrowers use the reverse mortgage loan to pay off an existing mortgage and eliminate monthly mortgage payments.

Myth # 3: You must pay taxes on the loan proceeds when they are received. Reverse mortgage loan proceeds are tax-free.  They are really not considered income. However, there may be an impact on government benefits eligibility.

Myth # 4: The borrower is limited on how to use the loan proceeds. When any existing mortgage or lien has been paid off, the loan proceeds from your Home Equity Conversion Mortgage (HECM) loan can be used for anything, such as supplementing household retirement income, deferring receiving Social Security benefits, paying off other debt, paying medical expenses, remodeling the home or helping family members.

Myth # 5: Reverse mortgages are for poor people. This is not true. The notion that reverse mortgages help only the poor borrower is changing. More affluent senior borrowers with multimillion dollar homes and healthy retirement assets now use reverse mortgage loans as part of their financial and estate planning.

Myth # 6: My children will have to pay off the loan. Reverse mortgages are a non-recourse loan. Therefore, if your children want to keep the home and the loan balance is more than its value, they’d have to pay 95% of the appraised value to keep the home.

Reference: TC Palm (February 21, 2017) “Myths vs. realities surrounding reverse mortgages”

Reverse Mortgages Are Back in Style

“A reverse mortgage gave us the option to build what we wanted.”

One couple who wanted to live in a community for people 55 and older in an area they had always admired used a reverse mortgage to finance building their home in that development.

The New York Times article, “The quiet comeback of reverse mortgages,” reports that reverse mortgages, which allow homeowners age 62 and older to tap into their accumulated home equity without facing monthly payments in return, have received a bad rap over the years because of abuses by lenders.

The volume of reverse mortgages decreased to about 30,000 this year from about 115,000 at their highest point in 2009. However, with reforms, they’re making a slight comeback and are viewed as a way of helping some retirees fill in the gaps in their future income. A reverse mortgage can provide cash or “longevity insurance” when other sources of retirement income dwindle. They also can be a source for out-of-pocket health care costs or other sudden financial needs. Similar to a conventional mortgage, a reverse mortgage obligation is met when the house is sold by the owners, the last owner has died or the home is sold by heirs. Any equity left over is kept by the last homeowner.

Also known as “Home Equity Conversion Mortgages,” these loans are insured by the government. The Federal Housing Administration makes up any debt owed from the final loan balance and net proceeds from the sale. You don’t have to worry about being “underwater” on the loan in case the home’s value is less than the mortgaged amount.

Reverse mortgages can give retirees with only modest savings but little or no housing debt the ability to stay in their homes and can provide a financial safety net for those worried about outliving their retirement funds.

A reverse mortgage can eliminate the burden of conventional housing debt, monthly payments of interest and principal, and can assure heirs that they wouldn’t be required to make up any losses if the home sold for less than the value of its mortgage.

Stricter regulation from the FHA and the Consumer Financial Protection Bureau—like mandatory counseling prior to lending—and lower costs have helped increased their popularity among seniors. Some folks don’t have enough savings to get through retirement, so they may use all of their wealth—including home equity—as a retirement income source. Others use reverse mortgages to create a cash buffer in the event a dip in the stock market depletes their retirement portfolio. Rather than selling stocks and funds when the market is down, they can use their home equity through a reverse mortgage line of credit to provide an income stream. One other rationale for seniors looking at reverse mortgages is to finance the costs of long-term care.

Although it can be a source of ready cash, a reverse mortgage isn’t for everyone. If you want to leave your home to your heirs by letting them sell your home at your death, a reverse mortgage will leave no equity in your home.

If you’re thinking about a reverse mortgage, do your homework and don’t be in a rush. Consult an elder law or estate planning lawyer for more information regarding how this might work for your situation.

Reference: The New York Times (July 2, 2016) “The quiet comeback of reverse mortgages”