Financial readiness assessment — where do you stand for care costs

Reviewed by Dr. Carol Whitfield, MD, Board-Certified Geriatrician

Understanding your parent's financial readiness for care costs means calculating what care will likely cost in your area, listing all income and assets, mapping insurance coverage and gaps, and identifying when money runs out under realistic scenarios. This assessment replaces guessing with facts and gives you time to plan before a crisis forces the decision.

At some point, your parent will need care that costs money. Not everything is expensive and some services are free or subsidized, but the significant ones carry real price tags. The question isn't whether there will be costs. The question is whether you know what you're working with.

This assessment isn't about finding money today. It's about understanding the actual picture so you can plan. If someone has substantial assets, maybe they can cover everything. If they have very limited assets, maybe Medicaid will help. If they're somewhere in the middle, there may be creative solutions. The key is knowing where you stand, not hoping it works out.

Calculating Potential Care Costs

Costs vary significantly by location and level of care. According to the ACL's most recent survey data, the national median cost for a home health aide is approximately $30 per hour, assisted living runs roughly $4,500 to $5,000 per month, and a private room in a nursing facility exceeds $9,000 per month. But these are national medians. Your area may be substantially higher or lower.

For in-home care, if someone needs a home health aide six hours a day, that's roughly $180 to $240 per day, or $5,400 to $7,200 per month in most markets. If they need 24-hour in-home care, double or triple that number. Some families hire someone live-in at a lower cost; others go through an agency and pay more. Get actual quotes from providers in your area rather than relying on national figures.

Adult day programs typically cost $30 to $50 per day if available in your area, and many are subsidized and cost much less.

Assisted living varies wildly by location. In high-cost metro areas, expect $4,000 to $7,000 per month or more. In less expensive areas, $2,000 to $3,000 per month is possible. That range is wide enough that you need local pricing to plan meaningfully.

Memory care, which is assisted living specialized for dementia, typically costs 20 to 40 percent more than standard assisted living at the same facility.

Skilled nursing facilities (nursing homes) run $7,000 to $12,000 per month in most markets, more in expensive areas. These are different from assisted living because they include medical care and 24-hour nursing staff.

Don't plan around national averages. Call facilities and agencies in your area. Get real numbers for your location. Those numbers drive the plan.

Understanding Income and Assets

List all income sources: Social Security, pensions, annuities, rental income, investment income, any part-time work income. Write down the monthly amount for each. This is the money that pays for ongoing care costs. Don't count on future income changes unless they're certain.

List assets: savings accounts, retirement accounts, investments, real property, vehicles. Write down the current value of each. Be honest. If the house is the only major asset and selling it creates hardship or homelessness, it may not be practically available for care costs even though it has value on paper.

For retirement accounts, understand withdrawal penalties if the account holder is under 59 and a half, and how withdrawals affect tax liability. If you're considering using retirement accounts to pay for care, talk to a financial advisor or CPA about the tax implications first.

Home equity is an asset worth understanding. If the home is worth $500,000 with a $100,000 mortgage, there's $400,000 in equity. That equity can potentially be accessed through selling, a reverse mortgage, or a home equity line of credit. But selling means moving. A reverse mortgage means taking on debt against the home. None of these are simple, and each has consequences worth discussing with a financial professional.

Add up total monthly income and total assets. Those two numbers frame what's available to pay for care.

Insurance Coverage

Long-term care insurance is uncommon but valuable if someone has it. According to AARP, only about 7.5 million Americans hold long-term care insurance policies. If your parent bought one years ago, dig it out and read the terms. These policies typically pay a set amount per day or month toward qualifying care, often with a waiting period and a benefit cap. Know what it covers, how long it pays, and what triggers it.

Medicare covers skilled nursing care only under specific circumstances: after a qualifying hospital stay, for a limited time, in approved situations. It does not pay for custodial care, which means help with daily activities like bathing and dressing, either at home or in a facility. This catches many families off guard.

Medicaid pays for nursing home care and can pay for in-home care through waiver programs if someone qualifies. Qualification is based on income and assets. In most states, the asset limit is roughly $2,000 for an individual, though rules vary significantly by state. Some states have expanded programs that allow people to keep more. Medicaid planning is complicated enough that working with a Medicaid planner or elder law attorney is often worth the cost.

Veterans benefits can be substantial if your parent served. The VA's Aid and Attendance benefit can help pay for in-home care or facility care for qualifying veterans. Talk to the VA or a veterans' benefits advisor about eligibility.

Employer retiree health insurance sometimes covers some care costs. Check whether a retiree plan exists and what it includes.

Doing the Math

This is where the picture gets real. Take a scenario: your parent needs assisted living in their area at $4,000 per month. Their monthly income from Social Security and a pension is $2,500. That leaves a gap of $1,500 per month, or $18,000 per year. Their savings are $150,000. At that rate, savings cover about eight years of the gap. After that, the money is gone.

Or another scenario: they need in-home care at $6,000 per month, their income is $1,500 monthly, and their assets are $200,000. The assets cover roughly four and a half years. Then what?

The goal isn't to have a perfect prediction. The goal is to see the gap clearly. If income and assets cover most care costs through a reasonable time horizon, that's one situation. If the money runs out in a few years under any realistic scenario, that's very different information, and you need to start exploring Medicaid eligibility, family contributions, or lower-cost care arrangements now rather than in crisis.

Scenario Planning

Run a few scenarios with different assumptions. What if care costs more than expected? What if your parent lives longer than average? What if care needs escalate from assisted living to nursing home level? What if two family members need care at the same time?

None of these predictions will be exactly right. The point is finding the vulnerable spots. If every scenario shows money running out by year five, that's a planning problem you can address now. If costs stay manageable through most scenarios, that's different and more comfortable information.

Using This Information

If assets and income are sufficient, the main planning work is around choosing appropriate care and managing the tax implications of spending down assets.

If there's a gap, several paths exist. Some families contribute financially to cover costs. Some consider selling the family home to free up equity. Some adjust the level of care: a less expensive facility, shared rooms instead of private, fewer hours of in-home help. Some people relocate to a lower-cost area. Some plan for Medicaid once assets are spent down.

Medicaid planning is sophisticated enough that an elder law attorney can help structure finances to minimize unnecessary spend-down. They know the rules in your state and can explain what's possible.

The hardest conversations are the family ones. If your parent has $100,000 in assets and will need $5,000 monthly in care for years, the math doesn't work without Medicaid, family contributions, or a less expensive care arrangement. Having this conversation openly with everyone involved, your parent, your siblings, your spouse, is painful but necessary. The financial assessment gives you the facts to have that conversation grounded in reality rather than assumptions.

This work is uncomfortable. But it removes the guessing, creates time to plan, and means you're making decisions from facts rather than panic when the need becomes urgent.

Frequently Asked Questions

When should we do this financial assessment?
As early as possible, ideally before care is needed. The best time is when your parent is healthy enough to participate in the conversation and share financial information. If a care need already exists, do it now. Even a rough assessment is better than no assessment.

Should we hire a financial advisor or can we do this ourselves?
You can do the basic assessment yourself using the framework above. For Medicaid planning, tax implications of asset spend-down, or complex situations involving trusts, real estate, or multiple income sources, a financial advisor or elder law attorney is worth the cost. Many offer initial consultations for a flat fee.

What if my parent won't share their financial information?
This is common. Many older adults are private about money, or they fear losing control. Framing the conversation around protecting their choices ("this lets us make sure your money goes where you want it to go") sometimes helps. If they have a financial power of attorney naming you, that document gives you legal access to their accounts. If they don't, getting that document in place is a priority.

Does Medicare really not cover long-term care?
Medicare covers short-term skilled nursing after a qualifying hospital stay (typically up to 100 days, with copays after day 20) and limited home health services. It does not cover ongoing custodial care: help with bathing, dressing, meals, and daily activities. This gap is the primary reason long-term care costs fall on families and Medicaid.

What happens if the money runs out while my parent is in a facility?
If your parent is in a nursing home and their assets are depleted, they can apply for Medicaid to cover the cost. Many nursing homes accept Medicaid residents, though some have limited Medicaid beds. Assisted living Medicaid coverage varies significantly by state. An elder law attorney can help you plan for this transition before it becomes an emergency.