A Senior’s Guide to Using a Personal Loan to Pay for Long-term Care
Long-term care is a health or personal care service helping you live safely and stay as independent as possible. Around 7 million older adults in the U.S. need a form of outside assistance, whether that’s help with some or all activities of daily living.
Unfortunately, help doesn’t come cheap. As a nation, we spent $235 billion on long-term care services in 2017. With older adults earning an average of $24,224 in retirement and nearly one in five having less than $5,000 as their nest egg, paying long-term care expenses can be a frightening prospect. As a remedy, many older adults add personal loans to their financial tool kit to ensure they meet their long-term care needs throughout their golden years.
The older you are, the higher the likelihood you’ll need long-term care. Only 13% of those between 65 and 69 require regular outside help, while 55% of those 85 and over need assistance. Part of the reason for the increase is because a growing number of adults are looking to age in place and receive supportive services in the comfort of their homes.
Another group of aging adults elect to use long-term care for acute situations. For example, they might need assistance caring for themselves after a major medical procedure until they are well enough to be on their own again.
In-home care while recovering from illnesses and flu are also common. The coronavirus pandemic is at the top of everyone’s mind as it continues to spread throughout the United States and the world. The virus can be especially debilitating for people over 65 or those with underlying respiratory conditions, such as asthma. Even older adults well enough to be sent home may still need help with regular tasks until they regain their health and strength.
Other reasons older adults turn to long-term care include:
- Healing from fractured bones or head injuries caused by a fall
- Dementia and Alzheimer’s disease
- Heart disease
- Parkinson’s disease
- Chronic or terminal medical conditions
Despite its prevalence and need, the notion of requiring outside help can be hard for some older adults to accept. They may feel like they’re losing control by admitting they need long-term care. Others have serious concerns about affording long-term care.
Deciding on your long-term care
What long-term care solutions work best for you depends on the level of care you need. Questions like, “What kind of services do I need?” and “What services are within my budget” will narrow down your choices. These are the most common options you might come across:
Aging in place
A large part of older adults in their 60s or early 70s may feel they can live independently in their homes with some help around the house. This can involve hiring someone for home cleaning and maintenance tasks, household chores, meal preparation or other activities they don’t want to do or have trouble doing because of mobility or health issues. Home modifications may also be part of a plan to age in place.
Home care agencies provide many of the same services you would get at an assisted living facility. These non-medical caregivers provide housekeeping, as well as assistance with daily living activities, such as bathing and dressing, cooking, companion care and other household tasks. If you need medical care, home-based nursing offers long-term care services, such as monitoring vital signs and catheter care, while visiting nurses will help with short-term recovery and rehabilitation.
Adult day care
Adult day cares provide an array of services during day-time hours to ensure loved ones stay safe, healthy and happy. They also encourage interactions with other adults and provide a way for people with cognitive impairments such as dementia to continue being part of a community while in a protective environment. Adult day cares have a planned activities program, and are designed for adults who need supervision or feel isolated. For caregivers, it can be a perfect time to go to work, attend school, take some time for themselves or devote attention to other family members.
Assisted living facility
Assisted living facilities are an alternative housing type with private or semi-private units that don’t come with the responsibilities of homeownership or living alone. While assisted living typically doesn’t include medical care, the majority provide meals, housekeeping, laundry and assistance with routine activities as part of their fees.
Costs of long-term care
Older adults often feel they would be able to live by themselves if they could modify their homes to be more accommodating to their needs as they age.
Upgrading your home for better mobility and security might mean adding:
- Stair lifts
- Grab bars and rails
- Pullout shelves
- Nonslip flooring
- Slip-resistant shower and tub surfaces
- Walk-in tubs
- Transfer benches for showers and tubs
- Wide doorways and hallways
- Emergency response systems
- Wheelchair ramps
Together, these costs can add up to tens of thousands of dollars, an amount that older adults on a restricted retirement budget may find unaffordable.
Long-term care costs also quickly add up when recovering from a sickness or medical procedure. Jerry Solomon, a long-term care insurance advisor for the past 26 years, and owner and founder of Group Health Services in Naples, Florida, says, “$60,000 [can be] eaten up in five to six months of care…the impact of the cost can be substantial.”
How can costs for care get so high? As Solomon explains, “If you have a heart attack and want your care at home, you need to have a nurse come every three hours to come and look at you. It’s expensive. And who’s going to take care of you while you’re at home? Now you have to pay for a home health care aide. Long-term care insurance will pay for a home health care aid, but…Medicare only covers a certain number of [nurse] visits and certain kinds of therapy.”
If you lack long-term care insurance and have to pay for a home health aide yourself, the national average is $23 per hour. If you need around-the-clock care, that amounts to $550 per day. By the month’s end, you’ll have paid $16,743. If you’ve used up your allowed number of nurse visits or aren’t covered for your in-home therapy, that’ll be an additional expense.
What are some other costs you might encounter in long-term care?
|National Median Costs|
|Type of care||Hour||Day||Month||Year|
|Home health aide||$23||$183||$5,581||$66,976|
|Adult day health care center services||N/A||$75||$1,625||$19,500|
|Assisted living facility||N/A||$133||$4,051||$48,612|
|Semi-private room in a nursing home||N/A||$247||$7,513||$90,155|
|Private room in a nursing home||N/A||$280||$8,517||$102,200|
Costs for long-term care vary widely by state. Some of the least expensive states for assisted living are:
On the other hand, you’ll be paying premium prices if you live in Washington D.C., which costs about $80,400 per year for assisted living. After that, the top five most expensive states are:
How to use a personal loan to pay for long-term care
Personal loans can help cover the long-term care costs that private health insurance and Medicare Parts A and B won’t pay for, including:
- Nursing home care
- Assisted living facilities
- Adult day care
- Customized medical equipment
- Deductibles, copayments and coinsurance
- Special dietary needs
Medicare only pays for medically necessary and acute care, such as a stay of fewer than 100 days in a nursing home, if you meet the requirements. Even then, only the first 20 days are fully covered before a daily copay of $176 kicks in for the other 80 days.
Long-term care insurance was created as a solution, but there are still gaps older adults may have to fill themselves. If you’re in a nursing home or need a home health care aide, those services are generally included in your long-term insurance. But, if you need to modify your home or car to keep your independence, you’re responsible for the expense.
Also, Solomon warns that “Most [long-term care] policies have a minimum 90-day waiting period. If something happens to you, the first 90 days you’re on your own.” He adds, “To have a claim, you have to be unable to do a minimum of two activities of daily living…so bathing, toileting, transferring, showering, things like that. And it has to be like that for a minimum of 90 days.”
Most long-term care insurance policies also don’t include an inflation rider — a type of insurance inflation protection. Solomon says, “Say you need a plan that’s going to cover $5,000 per month under today’s dollar. Well, what about down the road?” You could be stuck paying the inflation difference from your own funds.
When to use a personal loan for long-term care
Personal loans can pick up the tab left by health and long-term care insurance — whether it’s because the service wasn’t covered, you didn’t receive enough money or you’re waiting for your long-term care insurance to kick in. In these instances, personal loans are a practical solution for getting access to more money, especially when you know you’ll soon be receiving additional funds.
While long-term care policies are a saving grace when you need extensive care or can’t perform activities of daily living, they won’t help in the in-between years when you’re still healthy enough to get dressed and make a bite to eat but can’t clean the house or drive to run basic errands. A personal loan can act like a savings account you dip into when necessary to pay for the additional help you need.
And since you can use the money any way you want, personal loans can also save your finances when one-time costs occur like purchasing a new wheelchair or adding a walk-in tub to your home.
When not to use a personal loan for long-term care
Older adults often have a limited retirement budget to contend with. Twenty-eight percent of Americans between ages 60 and 69 have less than $50,000. Unexpected expenses, high cost of living, other priorities and low salaries can make it an impossibility to save the minimum $1 million most financial advisors recommend for retirement.
If carrying a personal loan would create a financial hardship, exploring lower or no-cost alternatives is ideal. You may consider moving in with family or to a cheaper state, downsizing or using the long-term care rider of your life insurance policy.
Many newer life insurance policies offer the opportunity to use your death-benefit money for long-term care. “Let’s assume you buy a policy for $300,000 and somewhere down the road you need long-term care and use $100,000 to $200,000…Upon death, whatever you use gets deducted from the face value of the policy,” says Solomon.
Another possibility is a reverse mortgage. “Through a reverse mortgage, the lender will give you X amount of dollars based on the equity of your home to use any way you need to use it, in this case, to pay for long-term care. And [you] never have to pay the money back while living. The money gets paid back to the lender once the house is sold.”
Also, “any gain on the sale still goes to the owner or the beneficiary. If the house for any reason sells for a loss, then they are not responsible for any deficits.”
Pros and cons of a personal loan
Personal loans are a great financial resource when it comes to paying for the costs of aging in place. They can cover the bulk of smaller expenses, like adding grab bars and non-slip flooring, changing door handles, widening doorways and investing in emergency response systems. You can also use personal loans to pay for larger expenses, like adding a stair lift or walk-in tub. Personal loans are flexible, so you can use them to cover any home upgrade. As a bonus, leftover money can be used for unexpected repairs, insurance deductibles and emergency room visits. Most lenders offer personal loans up to $100,000 for borrowers with excellent credit profiles.
“People do borrow money all the time to make a house payment, make a car payment, to do other things,” says Arthur Finkle, a veteran Certified Financial Planner with over 50 years of experience and his own South Florida firm, Finkle Financial Planning.
But Finkle sees personal loans as “the last resort” for older adults needing help paying for home care expenses. “If somebody needed long-term care — which means they can’t perform two activities of daily living — if they don’t have a lot of assets, no bank is going to loan them money. If they did have a source to borrow money from, it would be fine provided the interest isn’t exorbitant.”
Your income and assets are closely scrutinized when taking out a loan at a bank or credit union. If you don’t have enough financial backing to give lenders confidence in your ability to repay the loan, it might be challenging to find a lender. Some lenders also have a minimum income criterion before you’re eligible to apply.
If you do get a personal loan, it’ll be easier to pay off than a credit card because of lower interests and fixed repayment plans. You’ll know every month how much to repay and for how long, so you can budget accordingly.
Older adults hoping to leave an inheritance to their heirs also won’t have to tap into their home equity or sell assets because unsecured personal loans don’t require collateral. The trade-off is you might need to get a smaller loan to be approved, and you’ll have higher interest rates.
Unfortunately, unlike reverse mortgages, where the interest is deductible when the house is sold, accrued interest on personal loans isn’t tax-deductible.
|Flexible spending||Can be hard to get without assets|
|Lower interest than credit cards||Minimum income requirements|
|No collateral required for unsecured loans||No tax deductions on interest paid|
How to pay off your personal loan (especially when on a budget)
If you do take out a personal loan, here are five tips you can use to repay your personal loan, even if you have a limited income.
Tip 1: Create a budget plan
David Czarnecki, CFP, CLU, ChFC, RICP, a financial advisor of Northwestern Mutual Wealth Management Company in Milwaukee, Wis., says that paying off your bills on a budget “goes back to financial planning 101— and this could be for a 22-year-old or a 72-year-old — but it goes back to the basics of looking at one’s expenses and trying to make things work.”
When you see money coming in, but don’t know how it’s flying out, a budget can act like a detective that helps you get to the bottom of your money woes. Zero-based budgeting is a money management system that takes each dollar of money that comes in and assigns it to a category, whether that’s bill payments, mortgages, groceries or charitable donations. You’ll know exactly what happens to your money every month and how you can best prioritize or lower your spending to pay off your personal loan.
Tip #2 Strategize your bill payments
At retirement age, it may make better sense to take any extra mortgage payments you were making and use them to pay off more pressing bills, even if only for a predetermined period. This is especially true if you obtained an excellent interest rate when you bought your home.
If your mortgage interest rate is too high, consider refinancing for better loan terms. You can also refinance personal loans if you think you might get a better deal.
Tip #3 Free up money
Chances are your home is your largest asset. You’ve poured money into it for decades, and now you could use some cash to give your finances more breathing room. If you are finding it hard to pay off your personal loan, consider downsizing to a house with a lower mortgage — or no mortgage at all — and better rates on property taxes, insurance, and maintenance and utility bills. You’ll lower your monthly expenses and have some money left over to pay off debt or save in an emergency fund. As an alternative, you can also apply for a reverse mortgage.
Tip #4 Generate more income
Countless people spend their days dreaming about what they’ll do when they no longer have to work. And while some do enjoy the rounds of golf and lazy weekday schedules in retirement, an increasing number of older adults are buying into active aging.
For several older adults, going back to work full or part time provides them the exercise, mental stimulation and social connection associated with active aging. Jobs that are friendlier for older adults, like tutoring, coaching or hotel concierge, can bring in money for debt repayment or household expenses. It can also be used for hiring long-term care help that assists with more physically demanding tasks, like housekeeping and grocery shopping, or to pay for home upgrades that make living quarters more accessible.
Tip #5 Talk to a professional
Most financial advisors will give you a free initial consultation where you can discuss how you can pay off your personal loan if you’re struggling to make payments or are behind. Afterward, starting prices for creating a comprehensive budgeting plan with a fee-based financial advisor start at around $1,000. If the cost seems prohibitive, you shouldn’t be deterred from seeking a financial advisor. Low-income individuals may qualify for free financial help. Search your area for pro bono advisors or free financial planning resources to create a personal loan payoff plan.
Czarnecki advises, “if that’s not possible — if the cash flow coming in is less than the bills, then at some point, someone can go into crisis planning. That would be meeting with an attorney specializing in Medicaid spend-down planning.” In a Medicaid spend down, you work with an attorney to spend some of your income or assets to make sure it’s low enough to be eligible for Medicaid.
Aging in place is possible
Long-term care doesn’t mean you have to give up your autonomy or independence. About 25 million Americans are successfully aging in place by using assistive devices like canes and modifying their homes for better mobility and safety.
In-home care is also a growing trend, thanks to longer life expectancies and the 10,000 baby boomers a day who reach retirement age. But as populations age, adults need more treatment and management of acute and chronic health conditions like arthritis, heart disease and diabetes. A large number of older adults prefer to stay in their homes for as long as they can. Home health care supports that desire by allowing older adults to keep their independence and age in place.
No matter your situation, today’s health care allows you to get medical and non-medical services while living at home or at a health care center. Depending on your circumstances, Medicare, Medicaid or long-term insurance can pay for costs.
For the expenses insurances don’t cover, you have options. Personal loans are one way to pay for long-term care expenses, as are reverse mortgages, home equities and other types of loans. If you have a life insurance policy with a long-term care rider, you can also use that to supplement disbursements received from Medicare or Medicaid. Other life insurance policies have an accelerated death benefit that lets you draw money from your plan if you need long-term care over an extended period.
If you’re unsure about how to make your dreams of aging in place come true, a financial advisor can help you sort out which path is best for you.