When your parent or another loved one is diagnosed with dementia or Alzheimer’s disease, it might feel like your world has fallen apart. There’s shock, grief and a vast number of logistics to navigate. Then, there’s the cost.
The price tag can be steep for any level of senior care, but specialized care — especially the cost of memory care — can be devastating. Ideally, seniors are able to cover the cost of care. But not everyone can or wants to prepare financially for long-term care, says Joy Loverde, aging expert and author of “The Complete Eldercare Planner, Revised & Updated 4th Edition.”
“Some seniors understand the immediacy to save for the day they hope will never come,” Loverde explains. “Some mistakenly believe that Medicare and Medicaid pay for long-term care; and others insist that planning for a diagnosis such as dementia that may never happen makes no sense whatsoever.”
Those who didn’t prepare often rely on family to pick up the tab, putting even more strain on the sandwich generation. But family caregivers shouldn’t assume they’ll have to dip into their own retirement savings to help, Loverde says. When it comes to paying for dementia care, exploring options and planning swiftly can get your loved one the care they need without sacrificing your financial stability. Below, experts share their best tips for paying for Alzheimer’s and dementia care.
Alzheimer’s and dementia care costs
The costs of care for a senior vary significantly depending on the location and level of caregiving required. According to the most recent data based on rates reported by service providers listed on Care.com, the average monthly cost of a memory caregiver is $3,574.
And you could spend up to $10,030 on a starting base rental rate per month for a memory care community, according to Brookdale, the largest operator of senior living facilities in the United States.
These aren’t the only expenses to consider. According to a report by the Alzheimer’s Association, in 2023 dollars, the total lifetime cost of care for dementia totals around $400,000. It found 70% of those costs fall onto family, including unpaid caregiving and out-of-pocket costs. Then, there are the unexpected costs.
“Current estimates of lifetime costs of care may underestimate the financial impact of a relative’s dementia on family caregivers’ health and workplace productivity, as other potential costs such as home modifications, respite service use and health/work productivity challenges are not always considered in cost estimates,” the report notes.
In addition, the costs of long-term care rise over time, as do insurance policies, which may result in a senior canceling coverage, says Jay Sharifi, an investment advisor and founder and president of Legacy Wealth Management in Manassas, Virginia.
This saves money in the short term, but if dementia care is needed later, “after taxes and income needed for living, it becomes difficult for individuals to pay for such an expensive need,” says Sharifi, who’s also author of the book “Building a Better Legacy: Retirement Planning for Your Lifetime and Beyond.”
It’s also easy for seniors to spend younger years focused on goals like investing for retirement rather than planning for contingencies. “We spend so much time discussing the potential negative impact a bear market or market crash has on a retiree’s portfolio, but much less highlighting the devastation $120,000 to $150,000 per year of long-term care expenses has on a nest egg,” points out David W. Johnston, a Certified Financial Planner and managing partner of Amwell Ridge Wealth Management in Flemington, New Jersey.
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Paying for dementia care: How to plan ahead
Failing to prepare for potential health issues like dementia can leave seniors in a lurch and burden younger relatives. “Unfortunately, the lack of formal planning for dementia or Alzheimer’s and long-term care costs is rather common,” says Troy A. Young, founder and president of Destiny Financial Group in Atlanta. “In my experience, there are more cases that were not planned for than planned for. In those majority cases, it did fall on the family members to provide both care for their loved one and/or fund the cost of care.”
Ideally, before dementia progresses, sit down with your loved one (or review their files) to get a sense of their assets, debts, insurance policies and government benefits so you can determine a budget.
Don’t assume the best option is moving the senior in with you, Loverde says, whether to receive in-home professional or family caregiving. “We mean well when we ask our seniors to move in with us, but we may not anticipate the potential negative and stressful financial consequences,” Loverde says.
First, she encourages family caregivers to consider the following:
- Will your loved one need home upgrades to accommodate physical needs (grab bars, raised toilet seats, ramps) — and if so, will you pay, or is it their financial responsibility?
- Will you ask your loved one to pay rent or contribute to groceries?
- Will other family members pitch in time or money for things like housekeeping, errands and transportation to medical appointments?
- Will living with you impact your loved one’s Medicaid eligibility?
- What happens if you lose your job or can’t work due to illness or disability?
As you weigh options, Loverde recommends comparing in-home care costs to senior care facilities. She encourages meeting with sales staff at assisted living, life plan communities (formerly continuing care retirement communities), nursing homes and memory care communities to see how pricing and benefits stack up.
“Unfortunately, the lack of formal planning for dementia or Alzheimer’s and long-term care costs is rather common. In my experience, there are more cases that were not planned for than planned for.”
— Troy A. Young, founder and president of Destiny Financial Group in Atlanta
How to pay for Alzheimer’s and dementia care
While costs vary, the funding considerations would be the same whether remaining at home, moving in with family or moving into a facility, Young says. It’s challenging to forecast the timeline, Young notes, but “identifying the resources and determining the best level of care those resources can provide should be the approach.”
Many families cobble together Alzheimer’s and dementia care funding from different sources. Young’s own family did this when his mother-in-law required 24/7 care toward the end of her life. Medicare doesn’t cover long-term care, Young says, and his mother-in-law’s Social Security and pension exceeded her state’s Medicaid threshold. “We managed her expenses and care through a combination of her retirement income, our personal income and a rotating schedule for her personal care,” he says.
Here are some of the most common ways to pay for dementia care.
Sell your loved one’s home
“Many homeowners sell the house to help pay for long-term care,” Loverde says. If the senior owns their home, they may prefer to remain and receive in-home care. But in-home care can be pricey, especially as needs increase, and the logistics can become difficult for family to manage.
If you anticipate your loved one eventually moving into your home or a facility, consider selling their home a funding source for their dementia care. “Arrange a meeting with a real estate broker to obtain the value of the property,” Loverde suggests. In some cases, Young says, it could be worth considering a reverse mortgage, also known as a Home Equity Conversion Mortgage (HECM), which allows you to take out a cash loan using a house as collateral.
Life and long-term care insurance
Whole life/permanent life insurance policies have cash value (term policies don’t). If your loved one has a policy, Loverde recommends meeting with a life-settlement advisor to determine if your family should tap it to pay for care now. “Rather than paying premiums on a policy, your senior could potentially unlock thousands of dollars in lump sum payouts,” she says. “Selling an unwanted life insurance policy is no different from selling a home or any other valuable asset that will create immediate cash.”
Additionally, find out if the senior has long-term care insurance, since it’s too late once dementia is diagnosed. “Like all insurances, the time to purchase it is before you need it,” Johnston says. “Pre-existing conditions will preclude you from obtaining coverage.”
Traditional long-term care insurance kicks in, Young says, when someone can no longer perform two of the six activities of daily living (ADL): walking, feeding, dressing and grooming, toileting, bathing and transferring. “If two of the ADLs are present, it is too late for traditional long-term care insurance because carriers will not provide coverage after the fact,” Young explains.
The long-term care insurance landscape is always evolving, Johnston says, and asset-based hybrid policies are increasingly common nowadays. “These contracts combine life insurance or annuities with long-term care insurance and have much stronger guarantees than their predecessors,” he explains. If your senior has this type of policy, you can use funds for their long-term care; just know this reduces the death benefit.
Young notes that these hybrid policies can be less restrictive than standalone long-term care insurance. “These products address the concern of being too late but may have a holding period requirement before funding care,” he explains. Young also suggests looking into living benefit riders, which are available in some life insurance policies.
HSAs/FSAs
If you’re assisting with costs, consider utilizing a dependent care Flexible Savings Account (FSA) if your employer offers one. These accounts let you set aside pre-tax dollars to pay for eligible care expenses, including for older parents.
The downside, Sharifi says, is these require you to be working, and self-employment doesn’t count. Additionally, he says, these funds are use-it-or-lose-it and disappear if they’re unused beyond the calendar year, so it’s only wise if you know you’ll spend the money.
“A better option is a Health Savings Account plan, which provides much more flexibility with higher contribution limits, while not being tied to your employer,” Sharifi suggests. These are also tax-advantaged.
“The good news is it’s never too late to create a long-term financial plan between you, your newly diagnosed senior, and legal and financial professionals such as an estate-planning attorney and certified financial planner.”
— Joy Loverde, aging expert and author of “The Complete Eldercare Planner, Revised & Updated 4th Edition”
Private pay
Once government benefits and insurance policies are exhausted, look at what of the senior’s assets you could tap (you can also dip into yours, but avoid it if possible). These include:
- Checking accounts.
- Savings accounts.
- Non-retirement investment accounts.
- Retirement accounts like pensions, 401(k)s and IRAs.
Medicare/Medicaid
All four experts we spoke to emphasized the common misconception that Medicare covers long-term care. The federal benefit actually doesn’t cover living in nursing homes, and it only pays for skilled nursing for short-term stints, typically following inpatient hospital stays.
“People mistakenly believe that long-term care — for dementia or other chronic conditions — is a provision of medical care,” Loverde says. Instead, long-term care mostly entails help with those daily activities Young mentioned earlier, like bathing and eating, whether through in-home care or a facility. Since these activities aren’t technically health care services, Loverde notes, Medicare doesn’t cover them. Long-term care insurance and hybrid policies exist to fill that gap.
While most adults qualify for Medicare for at 65, Medicaid is only for low-income Americans. “Medicaid covers some long-term care services, including personal care services in some instances, but only for people who qualify based on income or other state-level eligibility rules,” Loverde says. She recommends calling your local Medicare office to inquire about eligibility.
Other ways to pay
- Young suggests families consider pooling resources ( time and money) to share the burden.
- Loverde recommends contacting your local chapter of The Alzheimer’s Association for dementia-specific financial resources.
- If the senior or their spouse served in the military, Loverde encourages contacting your local Veterans Affairs office to ensure they’re receiving all the benefits they’re entitled to.
The bottom line on paying for Alzheimer’s and dementia care
The costs of caregiving for dementia or Alzheimer’s can place a major burden on family members if the senior didn’t adequately prepare for this possibility. With rising healthcare costs and uncertainty about the disease progression, it can also be tricky to assess the true cost. “We don’t know what the length of care will end up being, and it’s next to impossible to cover all the variables,” Sharifi says. “One needs to save up more than what they expect they may need.”
But when you’re proactive about finding funding sources, utilizing benefits and seeking expert advice, you’ll have the best shot at making it work. As Loverde concludes, “The good news is it’s never too late to create a long-term financial plan between you, your newly diagnosed senior, and legal and financial professionals such as an estate-planning attorney and certified financial planner.”
