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Financial Considerations for Long Term Care Choices

Copyright © 2014 AARP. All rights reserved.

Money is the most sensitive issue relating to your long term care plans — not just how much you have but how you think about it. Here too the goal is not to make a judgment about your financial-management skills but a way to think about how you will approach long-term care. In nearly every case, long-term care does involve spending money, and much of it will be from your own or your family's resources.

Do you have a philosophy about money? People say things like, “Money is meant to be spent,” “A penny saved is a penny earned” (maybe updated to be more than a penny), “It's important to save for a rainy day,” and “I'm spending my children's inheritances.” Sometimes, of course, these are offhand remarks, but even so they may indicate overall attitudes about money.

Even without an explicit philosophy, many people approach financial decisions within some basic framework of optimism, fatalism, or risk-avoidance. Sometimes this philosophy has developed because of childhood experiences of poverty or difficult times in young adulthood, or the reverse, a lifetime of financial ease or a lack of responsibility.

Different people react to financial stress in different ways. Think about your personal financial philosophy as you answer the following questions:

  • Do you know how much money is in your checking account, savings account, investment portfolio, pension fund, and other assets? Or do you leave that to someone else to manage?

  • Do you carry a lot of cash or do you use credit cards for most purchases?

  • Do you buy a lot of products online or from television advertisers?

  • Have you ever regretted a major purchase bought on impulse?

  • Do you like to shop?

  • Are you or have you been in serious debt?

  • Do you know much money you are receiving (or will receive) from Social Security or a pension?

  • Do you know how much money your home (if you own it) is worth in today's market?

  • Do you know how much you pay in taxes and maintenance?

  • Do you have a regular household budget? Do you live within it?

  • Do you like to trade in your car every year or two?

  • Are vacations or travel an important part of your life?

  • Do you have current or future financial obligations to other family members, such as grandchildren's education?

  • Would you be able to maintain these obligations if you start spending more on long-term care?

  • Do you want to be able to leave money to children or grandchildren or other people?

  • Do you want to be able to leave money to cultural, religious, or other institutions that you have supported?

A financial adviser can help you work out just what your assets are worth (you may be surprised to find you are worth more than you think) and create different options for accessing and spending this money. Different housing options have different cost profiles.

Setting up a budget based on the costs that different housing options will require is a good way to determine what extra money you may have or how much you may need to trim from your current budget.

You have to be prepared to set priorities and limits. You should be comfortable with the financial plan as a basis for determining how much you can spend on long-term care without jeopardizing other important factors in your life.

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