The long-term financial plan — mapping costs across years of care

You're sitting across from your parent's doctor, and they're saying things like "he could live another ten or fifteen years" or "we'll need to manage her medications carefully going forward." And all you can think is: ten or fifteen more years of this? At this cost? What happens when the money runs out?

That's when you realize that thinking week to week or month to month isn't going to work. You need to think in years. You need to know whether your parent's money will actually last. You need a real plan, not just hope.

This is harder than people want it to be. It requires looking at numbers you might not want to see. It requires making assumptions about the future when you have no idea what will happen. It requires accepting that the numbers might be scary and that you might need to make difficult choices. But without this kind of planning, you're flying blind.

Understanding the Costs

The first step is brutal honesty about what your parent's care costs right now. Not what you think it costs. Not roughly. Exactly.

What does your parent need? If they're living at home with no care, the costs are lower. If they need meals delivered, medication management, transportation, the costs increase. If they're in an assisted living facility, it's different. If they're in a nursing home, it's different again. Each scenario has dramatically different price tags.

Look at your parent's actual expenses for the last three to six months. Get your parent's bank statements. Get their credit card statements. Make a list of every dollar that's being spent on their care or their support. Medications. Medical appointments. Insurance. In-home care. Facility costs. Home maintenance. Property taxes. Utilities. Grocery delivery. Transportation. Everything. Add it up.

The reality might surprise you. People often discover they're spending more than they realized. They've gotten used to writing checks and never added them up. Or they discover they're spending less. Or they discover that they're spending money that shouldn't be counted toward care. Getting the real number is important.

Now look at your parent's income. Social Security. Pension. Investment income. Annuities. Anything that comes in regularly. Also look at assets. How much do they have in savings? In investments? What's their home worth? Assets and income together tell you what you have to work with.

Once you know the real costs and the real income, you can do the math. If costs exceed income, your parent is drawing down savings each month. If income exceeds costs, your parent is building savings. The difference matters because it tells you how long before the money runs out.

Now do something harder. Project forward. If costs stay the same for the next five years and your parent's income stays the same, how much will they have spent? How much will they have left? Five years from now, will the money run out? Ten years from now?

This is where inflation matters. Costs don't stay the same. They go up. Care costs go up. Facility costs go up. Most things inflate at two to four percent per year. Some things, like healthcare, inflate faster. Build inflation into your projection. If your parent needs facility care in five years and it costs $5,000 a month now, it might cost $6,000 a month in five years. That's $24,000 per year instead of $20,000 per year.

Once you have your projection, you have a potential problem date. The month when, if nothing changes, the money might run out. This is important information. Not because it's definitely going to happen, but because it tells you how much time you have to plan for what comes next.

Sources of Payment

You've probably already figured out some of what your parent's current care is paid for. But for long-term planning, you need to know all potential sources of payment.

Medicare covers some things. Hospital stays. Part of skilled nursing care. Physical therapy. Medicare covers specific services, not general living expenses. If your parent needs to move to a facility and Medicare isn't covering it, where does the money come from?

Medicaid covers long-term care for people with limited income and assets. In most states, once your parent's savings are depleted, Medicaid becomes the payer of last resort. But there are rules, and the rules are complicated. States have different rules about asset limits and income limits. Some states have programs specifically designed to help people transition to Medicaid. Some don't. You need to understand your parent's state's rules.

Long-term care insurance, if your parent has it, covers part of the costs. Most policies have limits. They might cover $150 per day for in-home care but only $200 per day for facility care. They might have a maximum number of days of coverage. They might have elimination periods, like a 90-day wait before coverage starts. You need to understand your parent's policy specifically.

Veterans benefits can help cover long-term care for veterans. The Aid and Attendance benefit is one such program. If your parent is a veteran, contact the VA to understand what might be available.

Your contribution and your siblings' contribution is a financial source, whether you want it to be or not. If your parent's savings run out and Medicaid doesn't cover everything, family has to step up or your parent's care gets worse. This is an uncomfortable piece of the equation, but it's real.

Your parent's home is an asset. In some states, Medicaid might place a lien on the home if they're paying for your parent's long-term care. In other states, the home is protected. You need to understand your state's rules. If the home eventually sells, proceeds go to paying back Medicaid or cover your parent's care.

Some people plan to use home equity through a reverse mortgage or by selling the home. This is a legitimate strategy, but it has implications. If your parent sells the home to pay for care, where do they live? If they take out a reverse mortgage, the house will eventually be sold to pay it back. These are decisions that affect what happens long-term.

Making It Work

The actual long-term plan is built on these numbers. You know what things cost. You know how long your parent's money lasts. You know what comes next.

Let's say your parent's money will last about five more years if they stay at home with increasing care. Then what? Do you apply for Medicaid when the money runs out? Do you move them to a facility before the money runs out? Do you use the home to pay for care? These are very different scenarios with very different implications.

Let's say your parent might need a facility within three years based on health decline, but the money won't run out for eight years. That's a different scenario. You have options. You could wait and see. You could plan to move them when you think it's necessary and worry about costs then. You could start applying for Medicaid early, before the financial crisis hits.

Let's say your parent's money will last fifteen years, and they're 80 now, which means it might outlast them. That's yet another scenario. Maybe your parent's main financial concern is solved, and you can focus on quality of life instead.

In real life, scenarios are usually messier. Your parent's health might decline faster or slower than expected. Costs might be lower or higher. They might move in with you, which changes costs. They might have an unexpected large medical bill. The market might go up or down. There's genuine uncertainty.

This is where planning becomes useful not because it's accurate but because it forces you to think through scenarios. If X happens, what do we do? If Y happens, are we prepared? The plan doesn't have to be perfect. It just has to keep you from being blindsided.

A long-term plan should identify key decision points. When does your parent apply for Medicaid? When do you start looking at facilities? When do you have the conversation about the home? When is the point of no return, where something has to change? Knowing the decision points in advance makes the decisions less chaotic when they happen.

The plan should also identify what would improve the situation. Could you reduce costs by changing something? Could you increase income somehow? Could assistance programs reduce the financial burden? Could you stretch the money further by making different choices? The plan should explore these options.

Finally, the plan should involve other family members. If your parent's money runs out and you're expected to contribute, you need to have that conversation now. If siblings are expecting to contribute, they need to know that now. If nobody's going to contribute and your parent will eventually be on Medicaid, that's what will happen, but everyone should know it. These conversations are hard, but having them before the crisis arrives is far better than fighting about it afterward.

Planning for the Worst

I know I'm supposed to be optimistic, but I'm not going to tell you that everything will work out fine. Sometimes it does. Sometimes it doesn't. You need to know what bad outcomes look like and what you'd do.

What if your parent's health declines faster than expected? What if a major medical problem emerges that costs more than anticipated? What if your parent lives longer than anyone thought possible? What if the market crashes and investment income drops? What if a facility costs more than you budgeted? These things happen.

The planning exercise should include worst-case scenarios. What's the absolute worst financial situation you could face? Not because it will happen, but because if you've thought about it, you have some idea what you'd do if it does.

Some families decide that if the worst happens, they'll move their parent in. Some decide they'll let their parent go on Medicaid and just accept whatever that entails. Some decide they'll sell the home. Some decide they'll contribute money from their own retirement. None of these is obviously right or wrong. They're just different choices. Having thought about them in advance makes them clearer.

The plan should also include regular reviews. Circumstances change. Your parent's health changes. Costs change. The plan should be revisited annually or when something significant happens. The original plan from five years ago might not be accurate anymore. You need to adjust based on new information.

A long-term financial plan is not about predicting the future. It's about acknowledging that your parent's care will span years, costs money, and you need to have some idea how you'll handle that. The plan might change a hundred times. That's fine. What matters is that you've thought about it and you're not blindsided when decisions need to be made.

How To Help Your Elders is an educational resource. We do not provide medical, legal, or financial advice. The information in this article is general in nature and may not apply to your specific situation. If you are concerned about a loved one's cognitive health or safety, consult with their healthcare provider or contact your local Area Agency on Aging for guidance and support.