Self-Funding for Long-Term Care

As the term is used here, self-funding refers to paying for long-term care costs out of pocket with personal or family income, savings, pension benefits, stocks, bonds, and other investments. Contributions from children or other relatives may also come into play. Any financial product designed to grow and accumulate funds can be used as a way to save for future long-term care needs. However, most people find that, even when done in advance, saving a sufficient amount every month or every year for long-term care expenses is extremely difficult. Those who are older may not have enough time to ensure funding is complete.

When considering the best options to fund the costs of long-term care, the focus should be on what the cost of care will likely be in the future. The cost of all aspects of health care continues to increase; long-term care is no exception. The following chart projects today’s costs into the future, using an assumed annual increase of 5 percent. The sums that will likely be needed are considerable; for many consumers, they may be unattainable.

The risks of self-funding long-term care costs for even the most prosperous individuals are significant. They include

    not being able to define future long-term health care needs;

    not knowing when long-term care may be needed;

    not wanting to “sacrifice” money toward care that is intended to be passed on to family members and dependents; and

    losing the ability, through dementia or similar cognitive failure, to understand on what type of care the money should be spent.

Generally, self-funding is possible only for individuals with above-average wealth. Those whose disposable incomes exceed the cost of care are the best candidates for self-funding. For most others, attempts at self-funding could exhaust assets, eventually leading to reliance on Medicaid or other public resources. Self-funding can also take the form of relying on or expecting family members or loved ones to provide needed care. Depending on family and loved ones is certainly possible, but it ignores the realities of long-term care: that it can affect the quality of life of the caregiver, that the need for care will likely be ongoing and sustained, and that the caregiver may not be able to deliver the level or kind of care needed.