How to Financially Care for Your Parents As They Get Older

Think about your best memories of your parents while you were growing up for a moment. Maybe it’s the year they finally bought that bike you wanted for your birthday, or all the times you opened the freezer to see it stocked with mint chocolate chip ice cream, because mom knew it was your favorite.

It’s worth pondering as you take in your parents now, as they grow older. You might be wondering when you’ll be returning the favor of taking care of them, and more importantly, how.

The expenses for long-term care facilities, at-home nurses, or even walking aids can really add up. A 2016 survey by Genworth found that the average fee for a private room in a care facility was $7,698 per month. Even if your parents aren’t in need of additional care yet, it doesn’t hurt to start discussing the possibility. You don’t want the first time you breach this subject to be when elder care is needed—you want to already have a plan in place. And long before talk of assisted living comes up, there are other health-related costs that may arise.

The good news is that there are a number of ways you give your parents a hand, either by helping them manage their assets to cover future elder care costs, or by chipping in. Here are a few common ways you can finance elder care, including the benefits and the drawbacks:

Savings and investments

Best case scenario: Your parents already have retirement funds set aside for their elder years that will cover medical expenses or long-term care solutions. It sounds great, but realistically, not everyone has enough money saved for retirement. Your parents may already be retired, or they may be too close to retirement to make up the gap. In that case, you might consider taking care of your parents by putting aside your own money for their later years now, to be used if and when they need it.

The benefit is that you’re planning ahead, which is the safest approach. However, the con is that you likely have other financial obligations, like paying off debt, raising a family, saving for a down payment, or contributing to your own retirement savings. After all that, you may not want to tack on an additional line item, especially if you’re now buying bikes and mint chocolate chip ice cream for your little ones. Do you think you are on track for retirement? Figure out if you are with SoFi’s retirement calculator.

Long-term care insurance

Long-term care insurance is a smart way to cover the cost of in-home care, though some don’t realize it’s an option. Premium costs vary depending on a few different factors; if you’re younger and healthier when you become insured, your premiums will be lower. In fact, many experts suggest you enroll in your mid-50s.

But if your loved one is over 60 or in poor health, premiums might be prohibitive, or your parent might not be approved for coverage. While one of the benefits of long-term care insurance is that the premiums are usually tax deductible, the downside is premiums aren’t cheap. According to the American Association for Long-Term Care Insurance, the average annual premium is $2,466-$3,381 for a couple, which, like savings, is quite the add if you’re already stretched in your budget.

A reverse mortgage

A reverse mortgage allows homeowners over 62 to tap into the value of their home without selling it. They can take money out as a lump sum, a line of credit, or a steady stream of monthly income. Unlike a typical mortgage, they’re not required to make payments on the loan—instead they can repay it when they sell or move. (Hello, retirement community in Florida.)

But reverse mortgages can come with a catch. The loan balance increases over time as interest accumulates, and the fees and interest are often higher than with traditional mortgages. This can erode the value of your parents’ assets and estate significantly.

Health Savings Account (HSA)

HSAs are savings vehicles that allow your parents to set aside pre-tax dollars for future health costs. Many employers match contributions, and individuals can contribute up to $3,400 annually. Better yet, if your parents are over 55, they can contribute an additional $1,000 every year.

The pro: Your parents can actually invest the funds they have in their HSA so the money can grow over time. Those funds can be used to pay for health expenses in retirement, or long-term care insurance premiums. The cons worth noting? Your parents have to be the ones making the contributions to their own account, which makes it more difficult for you to help out. In addition, they don’t get tax incentives to contribute after age 65.

Permanent life insurance

If your parents own a permanent or whole life insurance policy, the policy has a cash value. They can access that cash value to pay for elder care costs in three ways: By taking a loan against the policy directly, by using the policy as collateral for a loan from another lender, or by surrendering part or all of the policy and getting the cash value in return.

The obvious argument for this solution is that it gets your parents the cash they need to pay for elder care. The drawback is that when you take out a loan against the policy, the interest charged is generally quite high. Furthermore, surrendering the policy reduces the death benefit. And finally, not everyone opts for whole life insurance to begin with.

Medicaid/Medicare

Medicare does cover things like skilled nursing care, hospice and respite care, home health services, and long-term care hospitals. However, it doesn’t cover long-term care for elders who need help on a day-to-day basis. In contrast, Medicaid does cover long-term care costs, but only in specific circumstances, and only once someone has spent almost all of their own assets.

Both programs have very strict eligibility requirements—you can visit the Medicare and Medicaid websites to find out if your parents would qualify.

A personal loan

When it comes to taking care of your elderly parents, there are both ongoing expenses, like in-home care, and one-time costs, like a new wheelchair. Personal loans can be a saving grace in both situations.

A personal loan, which either you or your parents can take out, may help you pay for large expenses as your parents age. Personal loans can also be used to pay for ongoing costs, especially if you expect additional funds will be available to repay those loans at a later date. For example, if your parents are planning to sell their house, it might make sense to finance their assisted-living costs with a personal loan until they can do so. Once the house is sold, you can repay the loans in full.

The pros are that it can be a much better idea than putting these sometimes unexpected expenses on a credit card, which usually comes with an astronomical interest rate. A personal loan can come with a lower interest rate and may help prevent you or your parents from having to sell assets to cover the cost of an at-home nurse. The cons, however, are that you must apply for one, and if you need to be funded quickly, the process of getting approved could take more time.

What’s right for your family

Taking care of your elderly parents when they’re facing medical expenses is one way to thank them for all that mint chocolate chip ice cream you ate growing up. But ultimately, the right option for paying for elder care costs depends on your parents and your own situation.

The future is uncertain, but it’s a relief to know that a SoFi personal loan is an option you can count on. And that’s especially true considering SoFi personal loans come with low interest rates and no hidden fees. When you’re taking care of your family, you want to be certain you’re making the right choice, so check out SoFi personal loans to learn more.