Tough Conversations for Families as Elder Care Costs Rise

There is much to consider when taking on the financial or day-to-day responsibilities of elderly family members. However, the biggest hurdle to cross is often those early, but critical, conversations with loved ones. Most families don’t have conversations about elder care. That include what that will look like when the time comes, advisors have shared.

“Until it’s pretty much imminent, a lot of people don’t think about it or plan for it,” said Kenneth Chavis IV, senior wealth counselor at Versant Capital Management, in an interview. “If I were to just boil it down… there are three areas where people are not at all prepared. Those are the amount of time that will be spent on it; the emotional impact or the emotional burden; and the monetary responsibility.”

He recommends caregivers and elderly family members hash out as many details as possible beforehand.

“In different families, as well as in different cultures and communities, there are different expectations,” Chavis noted. But each person’s expectations “may not work for everybody.”

Conversations That Aren’t Happening

A recent report from KFF, formerly known as The Kaiser Family Foundation, found that only 43% of adults said they’d had a “serious conversation with a loved one about who will take care of them if they need help with daily activities in the future.” Meanwhile, even fewer adults (39%) had ever had conversations about how this care would be funded.

“Four in ten adults (43%) say they are not confident that they will have the financial resources to pay for the care they might need as they age,” the report’s key findings said.

“Among those ages 50-64, many of whom are on the cusp of retirement, just under three in ten (28%) say they have set aside money that could be used to pay for future living assistance expenses,” it said. The report noted that the share is higher among adults ages 65 and older (48%). However, fully half of adults in that age group admit they don’t have any money saved for those future expenses.

Cady North, founder, CEO and financial advisor at North Financial Advisors, said that planning for changes can be “a little challenging and difficult.” That’s because “families don’t like to talk about money.”

Families should be having discussions about what level of involvement is expected in financial matters, she added.

Getting Into the Details

“Will I actually be writing checks? Or will it be more along the lines of helping them to transition into an assisted living facility? The parent may already have a plan in place,” North said.

Caregivers could raise the subject with parents or grandparents. They can do this by sharing that they’ve been doing their own retirement planning. So they wondered what their loved one’s plans were, she offered.

“Open-ended questions are your friend. As is building a level of trust around finances. So is getting a sense of what their thoughts, plans, and hopes are. If you’re not on the same page, everyone is making assumptions,” North said.

Rising Elder Care Costs 

These kinds of conversations are more important than ever for families. After all, the costs related to care for seniors have soared in recent years.

The economic value of caregiver labor within families (essentially unpaid labor) was estimated at $600 billion in 2021, according to an AARP report. This figure skyrocketed from the 2017 estimate for family caregiver labor,  which was $470 billion.

These estimates did not account for out-of-pocket costs associated with caregiving or lost wages, the report said. Today, elder care costs significantly outpace even standard inflation growth, Chavis said.

“Over the last multiple decades, the annual rise in costs for any type of senior care has significantly outpaced inflation,” he explained. “When we run [cost]analysis for folks, we would assume somewhere between 2%-3% annualized long-term inflation. But for the increase in cost of senior care, we would assume anywhere from 5%-6% annualized inflation. So that’s about double the rate of growth compared to general U.S. inflation.”

He has seen that, in most cities, costs related to day-to-day elder care can reach $8,000 to $10,000 per month.

“It can vary depending on where you are,” Chavis added. He noted that a low estimate is typically around $5,000 to $6,000 per month.

Long-Term Care Insurance

Sometimes individuals don’t feel prepared, or able, to take on the financial responsibilities of caregiving. In those cases, Chavis suggested looking into long-term care insurance options.

“It could be expensive in terms of premiums up front, but it could be worth it,” he said. “On some life insurance policies, you can have some long-term care benefits… It’s not cheap, but for certain situations. it can make sense.”

If considering some sort of supplemental insurance, Chavis recommended individuals talk to a certified financial planner or financial advisor, before going to an insurance agent.

“You want an unbiased consultation with someone who can perform an analysis on a comprehensive level. That’s as opposed to someone who is just going to sell you a policy. I’d recommend someone who is going to provide that consultation in a fiduciary capacity,” he said.

Home Equity a Potential Resource for Elder Care

Home equity is one financial resource that can be tapped if all other sources of income fall short, Cady North shared.

“Another area where [senior]parents or grandparents may have more resources than they think is the equity in their homes,” she added. “That’s a ready source of income to supplement the cost of assisted living that your retirement income or Medicare doesn’t provide.”

There are also some community-based organizations that offer certain services for seniors, like transportation and meals, North noted. “Most people have more resources than they expect,” she said.

North also recommended that individuals speak with a tax advisor. Those professionals can help uncover spending, like on medical care, that may be deductible.

“If more and more of the [elderly]parents’ expenses are directed towards medical care, that means that much more of their tax situation will be deductible. You don’t then have to pay taxes on top of all of [the other expenses],” she noted.

“There’s also ‘aging in place’: having a plan for how [elderly family]could do that for as long as possible, knowing that eventually they may need to move to an assisted living facility, where costs would increase,” North added.

In KFF’s survey, less than half (48%) of adults ages 65 and older said they had “set aside money that could be used to pay for ongoing living assistance expenses, including nursing home care.” Additionally, only 41% of respondents in this age range said they had researched available types of elder care. Meanwhile, 42% said they had modified their homes “to make it easier for them to live in as they grow older.”

Among respondents aged 50 to 64, nearly one-third of adults (29%) said they had modified their home to accommodate their needs as they age.

For more news, information, and analysis, visit the Financial Literacy Channel.