How to Pay for Assisted Living

Retirement may be years away, but it’s never too early to think about how to pay for assisted living if you think you’ll need it later in life. You may be tackling this question sooner than anticipated if you have aging parents who need more hands-on care. The experience may also inspire you to consider your advanced-age care needs. 

Here are some of the ways to pay for long-term care. 

What are the costs of assisted living?

The average cost of assisted living in the U.S. is $4,500 per month or $54,000 annually. What you pay for assisted living is influenced by several factors, including:

• The type of facility or community you choose to live in
• Your state
• The level of care you need

Base costs for assisted living typically include room and board, housekeeping, laundry, and meal services. If you need additional services for personal care, like bathing or feeding, the facility can charge separate fees. 

How to pay for assisted living 

Most people pay for assisted living from personal funds. That can include:

• Savings accounts
• Investment accounts
• Retirement accounts
• Pension benefits
• Social Security benefits
• Proceeds from the sale of a home

Insurance is also an option. The types of insurance products that can pay for assisted living include:

• Long-term care insurance
• Life insurance
• Annuities

Long-term care insurance is designed for people who anticipate needing assisted living or nursing care. You purchase a policy and pay premiums, and the policy pays benefits once you transition to assisted living.

Permanent life insurance policies and hybrid policies that include life insurance and long-term care coverage are another option. You may be able to pull cash value from your policy, convert it to a long-term care benefit account, or sell it to get money to pay for assisted living. 

An annuity is an insurance contract that pays you during your lifetime. You buy an annuity and pay a premium. The annuity company makes payments to you at a future date, which you can use to pay for assisted living or other needs. 

How can I pay for assisted living with no money? 

If you don’t have personal funds to pay for assisted living you might be able to get help through Medicaid. Medicaid is a government program that’s administered at the state level and it’s designed to help low-income individuals and families pay for health care. 

There are some stipulations to know:

• States determine what Medicaid will cover regarding assisted living costs. 
• Some states may allow you to use Medicaid to pay for personal care needs or memory care, but not assisted living room and board costs. 
• Eligibility is based on income and assets, and each state has different thresholds. 

It’s common for states to offer assistance with memory care or personal care needs but not cover the room and board costs of assisted living through Medicaid. If you’re researching what Medicaid covers, either for yourself or an aging parent/relative, the best resource is your state’s Medicaid agency. 

You can find your agency on the Medicaid.gov website. Once you locate your agency, you can apply for Medicaid. You’ll need to fill out an application and share certain documents.

For example, here’s what you’ll need to apply for Medicaid in Florida:

• Proof of residency, which may include a driver’s license, utility bill, or government document showing a Florida address
• Pay stubs, tax returns, or other proof of income
• Proof of assets, including bank statements, life insurance policies, vehicle registration, and mortgage statements
• Policy numbers for any health insurance coverage you have or a copy of your Medicare card

You may also be asked for proof from a doctor that you need the assisted living services for which you’re requesting Medicaid. 

Who pays for a nursing home if you have no money?

Assisted living assumes that you can still do some things yourself and want to maintain a measure of independence while living in a care community. Nursing home care, on the other hand, is designed for people with more advanced needs, such as chronic health conditions or severe disabilities that require round-the-clock care. 

With conditions, Medicaid can pay for a nursing home if you have no money. 

• Your nursing home of choice must accept Medicaid.
• You must be eligible for Medicaid based on your income, assets, and the level of care needed.

Medicaid can cover all the costs of nursing home care, but you may have to pay extra for a private room or special meals. 

Ultimately, most adult children want to help care for their parents no matter what. When parents do not financially plan, or have an early traumatic event causing them to need assisted living earlier than planned, it could cause the adult child/ren to utilize their funds to help care for their parents. This could impact their education savings for their own children, delay their retirement, and/or place them in financial hardship themselves.

Erin Kinkade, CFP®

Creative ways to pay for assisted living 

Personal funds, insurance, and Medicaid may only go so far when you or someone you love has assisted living needs. Here are a few other ideas on how to pay for assisted living if or when the need arises. 

Reverse mortgage

A reverse mortgage lets homeowners 62 and older borrow against their equity. But instead of making payments to a lender, the lender makes payments to the homeowner. Reverse mortgages backed by the government are called home equity conversion mortgages. 

You don’t have to pay anything toward a reverse mortgage while living in the home. Payment is due in full if you permanently move out or pass away. However, you can stay in an assisted living facility for up to 12 months without triggering repayment. 

Here are some of the best reverse mortgage companies based on our research.

Home equity loan or line of credit

A home equity loan lets you borrow a lump sum of money using your home’s value as collateral. A home equity line credit (HELOC) is another way to withdraw equity; instead of a lump sum, you get a flexible line of credit that you can use as needed. 

Home equity loans typically have fixed rates, while HELOCs may have fixed or variable rates. 

To qualify for a home equity loan or HELOC, you’ll need to meet credit score and income requirements and have sufficient equity. 

Here are some of the best home equity loans and best HELOCs based on our research.

Home equity sharing agreement

A home equity sharing agreement allows you to withdraw some of the equity in your home in exchange for an ownership stake. It works like this:

• You get an estimate of how much equity you could access from an equity-sharing company
• After an appraisal, the equity-sharing company offers you an agreement
• If you accept, you get some of your equity in cash, and the equity-sharing company gets partial ownership of your home
• You live in the home and pay nothing to the equity-sharing company
• At the end of the agreement, you pay the company their share of your equity, plus appreciated value

The upside of home equity sharing is that you don’t need excellent credit to get approved; you just need equity in your home. 

Here are the best home equity sharing agreement companies based on our research. 

Cash-out refinance

Cash-out refinancing allows you to replace your existing mortgage with a new, larger one and take the difference from your home equity in cash at closing. You could also use a cash-out refi to change your mortgage terms. 

A cash-out refinance loan has closing costs like any other mortgage. You’ll want to factor those in if you’re considering this option. 

Here are the best cash-out refinance companies based on our research.

I recommend pursuing long-term care Insurance underwriting, which will allow the individual to first find out if they are insurable for long-term care insurance and the best options (cost and benefits) are available to them. If they are not insurable, I recommend to begin saving and earmarking specific accounts as a medical set aside, along with recommending an appropriate and optimal asset allocation for the funds (i.e. some in cash reserves for initial costs, fixed income (bond funds), and equities). 

It is important to discuss this with your parents and understand their intention for long-term care. There are multiple options—some lead to the parent moving in with the adult children. The key takeaway is to have the discussion with your parents, know the plan, if there is not one, begin establishing one, and begin creating a plan for yourself. It is better to plan while you are well rather than wait until your health begins to fail.

Erin Kinkade, CFP®

FAQ

What can a nursing home take for payment?

Nursing homes can accept various forms of payment, including personal savings, long-term care insurance, and government assistance programs, such as Medicaid. If a resident qualifies for Medicaid, they must typically contribute most of their income, such as Social Security benefits, towards their care costs, with Medicaid covering the remaining balance. 

You can also use personal assets—think savings or proceeds from selling a home—to pay for nursing home care. However, specific rules apply regarding which assets are countable, and an elder care attorney can help navigate these complexities.

Can you get tax benefits and deductions for assisted living costs?

Yes, you can get tax benefits and deductions for assisted living costs under certain conditions. If you or your loved one resides in an assisted living facility primarily for medical reasons, care costs, including room and board, may be deductible as a medical expense. The costs must exceed 7.5% of your adjusted gross income to qualify. (For example, if your AGI is $50,000, only medical expenses above $3,750—7.5% of your AGI—would be deductible)

You may be eligible for the Dependent Care Credit if you financially support a family member in assisted living and they are unable to care for themselves. Consulting with a tax professional can help ensure you take full advantage of these deductions.

How can I pay for a nursing home without Medicaid?

If you don’t qualify for Medicaid, other ways to pay for a nursing home include using personal savings, long-term care insurance, reverse mortgages, and home equity. Long-term care insurance is one of the best options if purchased before needing care because it covers a significant portion of nursing home costs. 

Reverse mortgages and HELOCs can provide funds by tapping into home equity, but these options are generally suitable only if the spouse or another co-borrower remains in the home. Veterans may also qualify for VA benefits, such as Aid and Attendance, which can help cover care costs.

How do you pay for skilled nursing facilities?

You can pay for skilled nursing facilities using a combination of Medicare, Medicaid, long-term care insurance, personal savings, and veterans benefits. Medicare covers short-term stays in skilled nursing facilities for up to 100 days following a qualifying hospital stay, but it does not cover long-term care. Medicaid can cover ongoing care costs if the individual meets specific income and asset criteria. 

Long-term care insurance policies can also cover skilled nursing care, depending on the policy terms. It’s essential to review your options to determine the best way to manage these costs.

What is the best way to pay for elder care?

The best way to pay for elder care depends on your financial situation, available resources, and care needs. Options include personal savings, long-term care insurance, Medicaid, and veterans benefits. 

Long-term care insurance provides a structured way to cover costs if purchased early, while Medicaid supports those with limited assets. Home equity options can also provide necessary funds. Consulting with a financial advisor or elder care specialist can help identify the best approach based on your circumstances.

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