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How to Pay for Memory Care: 7 Surprising Ways

Merritt Whitley
By Merritt WhitleyFebruary 11, 2021
How to Pay for Memory Care: 7 Surprising Ways

Although memory care is commonly financed through savings, there are several additional funding sources that many people don’t know about. There are also many professionals who can provide clarity on this complex and naturally emotional topic.

“When parents need long-term care, especially if it’s sudden, it can be very overwhelming,” says Michelle Ash, a certified financial planner in Jacksonville, Florida, and Chartered Advisor for Senior Living™. “Try to stop, take a breath, and make a list of financial sources that can help you access some short-term immediate funds while you get your head around the bigger financial picture.”

From veterans benefits to home equity to life insurance policies and more, learn how to pay for memory care and how to find financial guidance or resources to reduce stress along the way.

1. Veterans benefits

Dementia care for veterans is provided through a range of health care services depending on their needs, according to the U.S. Department of Veterans Affairs. The VA Aid and Attendance program — a benefit for veterans pension recipients and their spouses — can provide financial assistance for memory care.

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To qualify for Aid and Attendance, a senior must meet one of the following requirements:

  • Needs assistance with activities of daily living (ADLs) like bathing or dressing
  • Have a mental or physical disability that requires extensive care
  • Be bedridden with the exception of medical appointments or therapies

Seniors must be 65 years or older, or completely or permanently disabled to qualify for veterans pension. Other qualifications include:

  • At least 90 days of consecutive active-duty services
  • At least one day of service during active wartime (not necessarily overseas or in actual combat)

View our VA Benefits and Long-Term Care Guide to learn more and how to apply.

2. Retirement savings without penalties

Does your loved one have an IRA or pension plan? These resources can be helpful even if a person hasn’t reached retirement age. A Roth IRA or Roth 401(k) includes dollars that have been put away by the owner. These monetary vehicles for long-term care expenses may be the bulk of what someone uses to pay for long-term care expenses, and they’re typically tax free to pull out as long as you play by certain IRS rules, says Ash.

Two criteria must generally be met in order to remove funds from a Roth IRA account without paying taxes:

  1. Must have a Roth account for five years
  2. Must reach age 59 years and a half

One benefit of your retirement account is that these funds are typically liquid and relatively easy to obtain. You may also be able to remove them year by year, so if there are tax consequences they may be mitigated, says Ash. Depending on your care needs and financial situation, you may also be able to deduct long-term care costs from your taxes.

“If you have a big deduction for medical expenses, which long-term care often is, then you might be able to offset those dynamics,” says Ash. “Using IRA dollars for long-term care isn’t always a bad thing to do — sometimes it can be a good source.”

It’s important to note that there are additional options for individuals who are younger than age 59 and a half requiring memory or another type of long-term care. If you have a disability and provide proof, then you may be able to take money out of the IRA and receive a waiver for the 10% penalty. The same concept generally applies to pensions as well.  For example, if a person is disabled or has dementia, it’s likely the pension plan will pay benefits early. This means a person with Alzheimer’s disease can use funds without paying any withdrawal penalties.

3. Social security

If a person is retirement age and collecting social security benefits, that income can be put toward memory care. Additionally, if your loved one is diagnosed with early-onset Alzheimer’s before retirement age, they may qualify for Social Security Disability Insurance (SSDI) benefits. Early-onset Alzheimer’s disease, and other disabling conditions listed in the Compassionate Allowances program, can expedite reviews of SSDI applications and provide quicker assistance.

4. Home equity

For many seniors, their home is their largest asset or investment. It’s often a logical source to pay for memory care.

Here are a few ways to use your home to afford memory care:

  1. Sell your home. Selling a home care is a common way to help offset memory care costs.
  2. Rent your home. If you prefer to keep your home, you can continue to build equity by renting it, which can also help generate income to pay for memory care.
  3. Reverse mortgagesallow homeowners age 62 and older to convert equity in their home into tax-free income. The home must be occupied, so this is an option if one parent needs memory care while their spouse remains at home.To begin your loan, you must meet with an approved reverse mortgage counselor. “In the case of a reverse mortgage, the bank either gives a lump sum of money to the homeowner, or structures it like a line of credit that they can borrow against. The third option is that they can set it up like a monthly paycheck of a pension,” says Ash.

5. Bridge loans

This short-term loan option can pay for memory care costs immediately while you’re liquidating assets or waiting for a home to sell. The advantage is you receive funds quickly. The downside is bridge loans typically have higher interest rates.

6. Senior life insurance policies

Some senior life insurance policies can be exchanged for Alzheimer’s care. Certain life insurance policies may be sold for a lump sum, which allows you to receive monthly payments. Some life insurance policies can also be converted into months or years at a residential care facility.

“If you have a policy that builds cash value inside it, which basically means that it has a savings account inside of it, then an individual may be able to do a couple of different things to use those resources for long-term care,” says Ash.

If you decide you no longer want the death benefit, you could cash out, or cancel, the policy and use the money to pay for memory care. Another option may be to take out a policy loan, says Ash. You use some money to pay for long-term care, but if it’s not all used, the rest remains a death benefit for beneficiaries.  Be sure to talk with the insurance company or their agent about possible impacts to the policy, so you make an informed decision about whether or not this is a good idea for you.

A life insurance, long-term care hybrid policy is becoming more and more popular, says Ash. “Many people have bought policies that have a death benefit as well as long-term care features.”

If you have a life insurance policy and need ways to pay for memory care, check on the specific details with your insurance company. Many have special provisions that may help you afford memory care.

7. Long-term care insurance

Long-term care insurance is a type of insurance for senior care. Sometimes, families don’t realize their parents have long-term care insurance.  While coverage depends on the policy, it generally covers the cost of memory care.

Generally, if you need help with at least two activities of daily living, long-term care insurance will pay some or all memory care expenses. “If you have cognitive impairments then you may meet the definition to qualify for monetary assistance,” says Ash.

Does Medicare or Medicaid pay for memory care?

Medicare doesn’t typically pay for memory care, though it may cover temporary care in a skilled nursing facility.

Medicaid, on the other hand, is health insurance for low-income U.S. citizens. It covers some aspects of short- and long-term care for seniors who meet Medicaid’s state and federal guidelines. Services vary based on state regulations, so it’s best to check the guidelines in your state. Not all memory care facilities accept Medicaid.

“It can be a good idea to consult with an elder care or an elder law attorney who can ultimately look at your particular state and tell you what it takes to qualify for Medicaid and what you need to know,” says Ash.

Find additional relief or assistance

For additional payment assistance, consider the following:

  • Property tax relief. Some seniors can receive credits or exemptions on their property taxes depending on their state and income.
  • State assistance programs. Many state assistance programs exist. Whether you want to save money on medicine, housing, or other needs, search for ways to savenear you.
  • Nonprofits. Many local and national nonprofit organizations have missions based on supporting and paying for senior care.

Seek personal advice about paying for memory care

You may be able to gather new ideas on how to pay for memory care, or perhaps a new perspective, by speaking with others:

  • Talk to family. Speak to family or close friends to gather ideas, or ask if they’d be willing to contribute to potential costs.
  • Speak with a senior living expert. Our Senior Living Advisors can help your family explore affordable memory care options based on your personal financial situation.
  • Contact an elder care attorney. It can save money in the long run to discuss your situation with an elder care attorney that specializes in senior matters and finances. This can be especially helpful if you believe you may need to fund senior living via Medicaid either now or in the future.
  • Consult a financial advisor.Find fee-only national advisors via the National Association of Personal Financial Advisors. This resource allows you to pay someone hourly or on an ongoing basis for personalized assistance. Another common resource for financial advice is a certified financial planner.
Merritt Whitley
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Merritt Whitley

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