When it comes to considering long-term healthcare costs in retirement, very few retirees consider these costs as part of their budget. Medicare and supplemental costs alone average 14 percent of income. However, Medicare will not cover long-term care in the home or a facility.
Unfortunately, only 19 percent of retirees understand Medicare benefits, according to a 2015 study by Merrill Lynch. There may be no money to set aside for long-term care. And finally, there is the hope that they will not be the unlucky person to need long-term care.
The reality is 70 percent of individuals over 65 will require some kind of long-term care during their lifetime.
One of the challenges for individuals as they age is to remain independent in their home. Small events can happen until additional care is needed. For couples, the healthy spouse usually steps in to offer assistance.
Studies have shown care-giving spouse will wear out emotionally and physically over time, and he/she will require help. The solution is to bring in help before both spouses need assistance. For individuals who live alone, there is the additional danger of accidents.
In most cases, the person needing help wishes to remain in the home. However, there is a cost for bringing someone into the home. And this is when some realities need to be faced.
Options for paying for long-term care in the home include:
• Private pay: The average cost for in-home care in Georgia is $20 per hour with a four-hour minimum required. This type of service is generally provided by licensed private companies and is private pay.
• Help from family: If family is nearby, they can supplement the care that is needed. However, there is a limit to how much care a family member can provide.
• Medicaid: Medicaid is a needs-based benefit. There usually is a long list of applicants for this service, and it may take months or years to be able to receive help. This option is not available for an immediate need.
• Veterans’ benefits: For military veterans who qualify, there are benefits through the Veteran Administration’s Aid and Attendance Program, which is also needs based. This also is not an option for an immediate need.
• Reverse mortgages: One of the original uses for these loans was to pay for long-term health care. The amount an individual can receive is based on the appraised value of the home, the age of the younger borrower on the title and the current interest rate.
A reverse mortgage becomes a viable option for someone needing immediate assistance in his/her home. The National Council on Aging produced a study on reverse mortgages and long term-care that states: “Almost half of older homeowners would be candidates for using a reverse mortgage for long-term care.”
The study “Use your home to Stay at Home: Expanding the Use of Reverse Mortgages for Long-Term Care: A Blueprint for Action” is available at www.ncoa.org.
The reverse mortgage was created during the Reagan administration, is administered by HUD and is insured by FHA. Urban legends have persisted for years that the lender will own the home,but that is not true. Costs associated with the loan are in line with any FHA loan program.
The program is unique in several ways.
• No payments are required.
• The homeowner and heirs have no personal responsibility for the loan. Equity left after the last homeowner leaves the home will go to the homeowner or heirs.
• Funds can be used by the spouse in the home to help pay for expenses if the other spouse is in a nursing facility and is on Medicaid.
• Funds remaining in the line of credit grow since more funds are released to the homeowner over time.
• Most costs associated with a reverse mortgage can be put into the loan.
The proper name for reverse mortgages is: Home Equity Conversion Mortgage. When someone has a reverse mortgage, that is what they are doing. They are converting a portion of their equity into usable funds to be used for something they need, such as long-term care.
Joan E Hillman has been a reverse mortgage loan originator for more than 12 years and works for Franklin-funding Reverse mortgages. For questions or information, she can be reached at 912-226-7637 or joan@franklin-funding.com.