“Three out of four Americans aged 40 years and older are not confident they will have the financial resources to pay for any needed care as they age,” according to the Scan Foundation. Up against the hundreds of thousands of dollars that long-term care can cost, it is no wonder Americans lack confidence when racking their brains for ways to pay for care.

Perhaps the first solution that comes to mind is to pay for the cost of long-term care out of your own pocket. You don’t have to be a well-off, retired millionaire to consider this option. Many middle-income families believe their assets will be enough to retire with and cover any care needs they might have later on. Maybe you believe your income, whether you are now a 45-year-old employee or a 65-year-old retiree with a pension, will be enough for you to settle down with as you age. Maybe you have promising investments that will surely return enough profit to take care of you for life.

Out-of-pocket spending situations vary among aging Americans, but certain constants remain. Ten thousand Americans turn 65-years-old every day. These seniors are living longer lives due to more advanced and pricier health care. In addition, the demand for senior care besides medical care is ever rising. But with a limited amount of quality providers and workforce members available in the senior care industry, resources are scarce and expensive.

The Scan Foundation also states, “70% of Americans who reach age 65 will need some form of long-term care for an average of three years.” An average, middle-income American making a $50,000 salary would have to reserve six years’ worth of income (about $300,000) to pay boarding fees for three years in a private nursing home room that costs $92,000 annually. This is a general example of what your situation can be like as you age and come to need care. To calculate your actual numbers, consult Genworth for the cost of long-term care in your area.

If monumental costs of care like these worry you to the extreme, or if you tend to avoid planning long-term care coverage until it is too late, the people you love may suffer. Long-term care is not just an individual senior’s personal need, but a concern and often a labor and financial burden to entire families. This is especially true when your personal assets dwindle because of the cost of care. With the ultimate goal of helping you and your families, this article will reveal the harsh reality of out-of-pocket spending for seniors and give you ways to avoid it at all costs.

Long-term care expenses, such as nursing homes and assisted living, are the No. 1 category of out-of-pocket spending, followed by home-health care.

In a study published in the Journal of General Internal Medicine, over 3,000 seniors revealed this statistic and other eye-opening findings for health and retirement issues. As people become more ill and require additional help, their out-of-pocket expenses soar and eventually wipe out all their resources. Medical care costs increase as people age and need more treatment, which buries individuals and families in premiums, deductibles and debt.

Long-term care spending includes covering nursing homes, intermediate care facilities, home health services and home and community-based services that provide assistance with activities of daily living. For example, a homemaker or caregiver will cost a state-wide average of $44,616 annually to provide in-home care. If costs of long-term care are so high, why do people choose to pay for it out of pocket?

At first, many people pay for long-term care with their own money. Their resources include personal savings, pensions, stocks, bonds or home equity. Out-of-pocket spending starts with seniors receiving informal help from friends and family, like transportation or food, and finding that they need paid help to take over these tasks. Also, gaps in government assistance such as Medicare mean some long-term care must be covered independently, or individuals obtain some type of private supplemental insurance to fill in for their needs. Another reason why people might choose to pay out-of-pocket for long-term care is because they do not wish to buy long-term care insurance, or have been ineligible for it. An unfortunate reality is that some people deny they will need long-term care in old age, and have not made any financial arrangements to cover it.

Two out of three 65-year-olds will need some long-term support and services before they die.

Whether or not you are in denial of your needs in old age, the majority of seniors are statistically proven to need long-term care. In days when seniors were stronger, more independent and near invincible, it may have been easy for them to disregard the reality of old age in the future. Perhaps they are confident that their families will take care of them when they need long-term care. These assumptions may have truth to them for some people, but for others, they lead to a harsh reality.

Saving far too little or falsely believing that accumulated assets are enough to cover the cost of long-term care will only place emotional and financial burden upon you and your families if your long-term care comes to exceed your resources. Lack of preparation is a huge reason why individuals and families resort to depleting their personal assets to cover care. This can start with spending personal savings to cover caregiver wages, having family pay for some of your nursing home room and board, or paying for rehabilitation fees using credit cards. When long-term support and services are nearly a sure-thing, you should guard against out-of-pocket coverage because it will very likely not be enough.

One in ten seniors will have to put aside at least $200,000 at age 65 to pay for their long-term care.

Putting aside this large of an amount of money is no easy feat, especially for middle-income people. Many people in this pay grade live on what they make and have little left for savings, let alone funds for long-term care much later in their lives. But over a working lifetime and into your old age, you will have to put aside hundreds of thousands of dollars to pay for long-term care on your own. The obvious question becomes – where should this money come from?

Some families find most of their savings in their larger investments, like their homes. After accruing home equity, selling their home may be the only option for seniors to get money, seeing as they most likely do not still work. Life savings can also be taken to cover long-term care.

$200,000 could cover years of in-home care provided by home health agencies. However, it is possible for seniors to require more aid than this amount would cover. With increasing health issues, seniors may come to need more hours of in-home care, or higher-skilled professionals to help them. They may also lose independence to the point that they need to live in assisted communities. A study found that a participating 65-year-old man would need to save an average of $47,000 for long-term support and services while a woman of the same age would need to save more than $90,000. So, gender can be an issue that increases your cost of care in addition to all other things.

One in five middle-income seniors will end up on Medicaid.

Medicaid provides some long-term care for people with disabling conditions. However, it is only available for individuals who meet income and other eligibility requirements. Middle-income seniors may initially be unqualified for Medicaid because they have or make too much money, but once they experience the harsh reality of out-of-pocket spending, that often changes. For a range of levels of income, seniors who spend out-of-pocket to cover long-term care costs will find their assets deplete faster than they expected. Once they have no more personal funding to spend, many will have to rely on Medicaid to pay for long-term care.

This is the last wish for some individuals and families, and often a blow to the pride of seniors who had established themselves as independent, self-sufficient and in control. However, many families find no other option. In 2010, Medicaid covered 62% of all long-term expenditures in the United States. Long-term care services are primarily financed by public dollars.

Borrowing against credit cards and home equity will leave few resources for a surviving spouse’s future needs.

Families often take on the duty of providing long-term care for a senior loved one before any other additional help is enlisted. This usually means that a senior’s spouse becomes the primary caregiver and with no compensation. Yes, this saves some money from the large price hired help would charge. For this reason, family caregivers believe they are serving to avoid financial burden. However, the emotional cost of family caregiving without respite is devastating. Family caregivers are proven to have decreased health, wellness, mood and are even vulnerable to early death.

When help is finally hired, either before or after a family caregiver needs replacement, it is often a relief. However, without proper planning and preparation, one senior’s long-term care may be gained at the sacrifice of the other’s. With senior couples, out-of-pocket spending to cover long-term care usually comes from mutual funding options, like joint incomes or home equity. If that funding is wiped out for one spouse, the other may not have anything left to cover their long term care. And since women are proven to live longer than men, their long-term care may cost much more than their spouse’s. Though they tend to be healthier, women spend much more than men on medical care.

Using other options to pay for long-term care

These are the three options seniors can use to pay for long-term care:

  • Personal funds, or out-of-pocket resources, like savings, pensions, income or selling of homes
  • Government health insurance, like Medicare and Medicaid
  • Private financing, like Long-Term Care Insurance

Why Should You Buy Long-Term Care Insurance?

  1. It will help you keep your independence. The alternative, paying out-of-pocket for long-term care, will remove the assets you once had to show for the accomplishments of your financial success and diligent saving in the past. Without your assets, you will not be in control paying for your own care. The government will be, providing coverage through Medicaid that may or may not fulfill the care needs you have. Many people want to receive care at home, but Medicaid does not cover this. With a long-term care insurance policy providing funds for your care, you will keep your personal assets.
  2. Your spouse will be protected. Costs for care between a couple will most likely be covered by combined income and assets. You may not know how long care may last, which means resources might have to be spent for an unexpected amount of time. If this time is too long, your spouse might not have enough for their future needs. Long-term care policies prepare for this, and often offer plans that work between couples. Some hybrid insurance products will even leave funds to beneficiaries after a spouse dies.
  3. Family caregivers will often burn out. While a family caregiver may be free of charge, the toll that caregiving takes on their bodies and mental health may not be worth the benefit. Caregivers who work round the clock to support elderly loved ones lose time and energy to take care of themselves, but often see their work as invaluable and key to their loved one’s survival. A long-term care insurance policy will provide the compensation for caregivers to take over and give your family members much-needed rest.
  4. Your assets will remain intact. If you have assets that you want to leave to your spouse or family, long-term care insurance can help you avoid spending them to cover long-term care. Preserving your assets through long-term care insurance, rather than spending them all out of your pocket, will help you secure the care you need, as well as the safety of your family in the future.


“Out-of-Pocket Spending for Senior Care: The Harsh Reality,” by Michelle Mendoza, Amada Blog contributor.