Financial Planning for Alzheimer's and Dementia Care

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Alzheimer's disease (AD) is the most prevalent form of dementia among older adults, marked by a progressive and irreversible decline in cognitive function. The number of Americans with Alzheimer's or other dementias is expected to rise as the risk of dementia increases with age. Notably, about 1 in 9 people (11%) age 65 and older have been diagnosed with Alzheimer's dementia.

Effective care for individuals with Alzheimer's or dementia requires comprehensive planning that spans medical, legal, financial and daily care aspects. This approach aims to provide high-quality, consistent support and reduce stress for caregivers. Numerous organizations offer financial assistance, training and advice to navigate these challenges.

How to Create a Financial Plan for Memory Care

Navigating the financial landscape of Alzheimer's and dementia care requires careful planning and strategic decision-making. A comprehensive financial plan addresses the direct costs of care and considers the broader impact on the family's emotional, social and financial well-being. Here are two critical areas to focus on when developing a financial care plan:

Seek Professional Advice

Engaging with professionals specializing in elder care can provide invaluable insights and guidance. From financial planners to elder law attorneys, these experts can help tailor a financial strategy that ensures your loved one receives the best possible care while safeguarding family assets and navigating legal requirements.

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    Financial Planner

    A financial planner specializing in elder care or estate planning can offer valuable guidance on managing assets, planning long-term care costs and tax implications. They can help create a financial strategy that supports your loved one's care needs while preserving family assets.

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    Elder Law Attorney

    Consulting with an elder law attorney can help you navigate legal options for asset protection, Medicaid planning and establishing trusts. They can assist with the legal documentation to ensure your loved one's care and estate are managed according to their wishes.

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    Geriatric Care Manager

    These professionals can help navigate the health care system, including identifying appropriate care options and resources that can save time and money. They can also assist in coordinating and managing care services.

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    Community Resources

    Many communities have local agencies or nonprofits that offer advice and support for families dealing with Alzheimer's and dementia. They can provide information on subsidies, grants and programs that help offset care costs.

Budget for Care

The key components of creating a comprehensive budget are assessing available funds, understanding care needs and planning for potential cost increases. This proactive approach can help families manage ongoing expenses and prepare for unforeseen costs, ensuring a stable financial footing throughout the care journey.

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    Assess Current Financial Resources

    Evaluate all available financial resources, including savings, investments, retirement funds and potential income streams. This step will form the foundation of your care budget.

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    Understand Care Needs and Associated Costs

    Break down the types of care your loved one may need now and in the future. Include costs for in-home care, assisted living, medication and other anticipated health care needs.

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    Create a Monthly Budget

    Based on your assessment, develop a monthly budget that covers all current care expenses. Use this to monitor spending and adjust as care needs change over time.

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    Plan for Future Costs

    Alzheimer's and dementia are progressive; therefore, it's important to anticipate and plan for increasing care costs. Include potential scenarios in your budget planning to avoid being caught off guard.

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    Emergency Fund

    Set aside some funds for unexpected expenses related to care or health emergencies to ensure you're prepared for the unforeseen.

Types and Costs of Alzheimer's and Dementia Care

In 2023, the total cost of caring for those with Alzheimer's or other dementias, including health and long-term costs, is estimated at $345 billion, with Medicare and Medicaid covering $222 billion, or 64%, of these expenses. These costs often include ongoing medical treatments, home safety modifications, prescription medications and personal care services. The total cost varies based on the required level of care, the care setting and the duration of care needed. While medical insurance may cover some expenses, it's unlikely to cover everything.

The lifetime cost of care for an individual with Alzheimer's dementia, accounting for out-of-pocket expenses, Medicare and Medicaid contributions and informal caregiving, was estimated at $392,874 per person in 2022. When preparing for Alzheimer's or dementia care, know the potential expenses you may face. Understanding care types and making informed decisions can greatly alleviate financial stress and facilitate the efficient allocation of resources.

In-Home Care

In-home care offers individuals with Alzheimer's or dementia the comfort of staying in their familiar surroundings. However, it incurs various expenses, including personal care services, home health aides and household modifications. In 2022, the median cost for a nonmedical home health aide was $28 per hour and $5,358 per month and the cost of homemaker services was $27 per hour and $5,159.

Paying for in-home care involves several avenues. Medicare may subsidize part-time or intermittent skilled nursing care and home health aide services, but it typically excludes 24-hour care, long-term care, meal delivery and personal care. Depending on the state, Medicaid and home and community- based services can provide additional home care and long-term care support.

Adult Day Care

For many families caring for a loved one with Alzheimer's or dementia at home, adult day care can be an affordable and beneficial option. These centers provide social interaction and supervised care during daytime hours, making them ideal for caregivers who require support at work. This option is more cost-effective than residential memory or private home care. The median cost of adult daycare services in 2022 was $81 per day.

Medicaid offers coverage for adult day care costs for low-income seniors with Alzheimer's and dementia nationwide, with specific eligibility available for those interested. Most states also provide financial assistance for adult day care, though these programs might not specifically target adult day care or individuals with dementia.

Memory Care

Memory care units, often part of assisted living facilities, offer specialized and secure care for individuals with Alzheimer's and dementia. The median monthly cost for an assisted living residence was $4,672 in 2022, amounting to $56,068 annually.

Medicare typically does not cover the costs of memory care when the services are provided in an assisted living facility or a dedicated memory care community. However, there are notable exceptions. Under specific conditions, Medicare may cover certain costs, usually up to a limit of 100 days for skilled nursing care.

Nursing Home

Nursing homes provide 24-hour medical care and assistance with daily activities, offering a structured environment particularly suited for those in advanced stages of dementia. In 2022, the average cost for a private room in a nursing home was $308 per day or $112,556 annually and the cost for a semi-private room was $270 per day or $98,534 annually.

However, financial assistance for long-term care in nursing homes for individuals with Alzheimer's or dementia is limited. Medicaid is a vital funding source for long-term nursing home care in the United States, covering most such care for those eligible. The requirements and eligibility may differ across the states.

Medications

The cost for medications specific to Alzheimer's or dementia and treatments for other related health conditions plays a significant part in these expenses, with the average annual per-person payment for prescription medications reaching $4,811. Additionally, necessary medical equipment such as wheelchairs, walkers or hospital beds for home use incurs further costs. Regular medical check-ups, specialist consultations and emergency care also necessitate professional fees.

How to Pay for Alzheimer's and Dementia Care

Financing Alzheimer's and dementia care involves exploring various options, such as personal savings, insurance benefits and financial aid. Asset liquidation and retirement savings can be practical sources of funding. You can also leverage insurance coverage. Policies may offer treatment coverage for Alzheimer's upon a doctor's diagnosis. Additionally, a wide range of financial assistance is available. Government programs like Medicare and Medicaid and nonprofit grants offer substantial support, helping families navigate the financial challenges of dementia care.

Private Pay

Utilizing private funds can be a strategy to pay for Alzheimer's and dementia care. These funds can come from personal savings, retirement accounts, asset sales like real estate or financial contributions from family members. Private funds grant you greater control over care choices, especially since insurance often does not cover long-term care.

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Personal Savings and Assets

Families often depend on personal savings for initial care expenses, drawing from cash reserves and both nonretirement and retirement accounts. Personal assets, whether owned by the dementia patient or other family members, can also support care costs. These assets include investments, such as stocks, bonds, savings accounts, real estate and valuable personal property.

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Retirement Benefits

Retirement plan benefits, including IRAs, annuities and pension plans, can also provide financial support, even before retirement age. Withdrawing funds from retirement savings accounts may have tax implications and potential penalties. However, early withdrawals from IRAs or employer-funded retirement plans might avoid the typical 10% penalty under certain conditions. Such withdrawals are considered taxable income.

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Other Assets

Selling or leveraging assets, like real estate, can generate necessary funds. Options include downsizing a home or liquidating investments. Home equity can also be converted into cash through a reverse mortgage for individuals 62 or older, which allows homeowners to borrow against their home's equity without affecting Social Security or Medicare eligibility. However, it may influence eligibility for other government programs.

Insurance Coverage

When it comes to covering the costs of Alzheimer's care, understanding your insurance options can make a big difference. Options range from government insurance like Medicaid and Medicare to private health insurance, which can help you pay for care. Each type of insurance has its own set of rules about what's covered, how much you'll pay out of pocket and how to apply. Getting to know these details can really pay off, helping you maximize the coverage you have.

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Medicare

Medicare is available to all U.S. adults over 65 and those with certain disabilities. For those with Alzheimer's and dementia, Medicare covers diagnostic tests, doctor's visits, hospital stays and, under Part D, prescription drugs. Medicare doesn't cover nonmedical dementia care, such as day-to-day living assistance and long-term nursing home stays.

Some gaps may be filled by Medicare Advantage Plans, which offer broader coverage options, including limited custodial care. Beneficiaries can also consider Medicare Supplemental Insurance (Medigap) to help with copayments and deductibles for Medicare-covered services, though it doesn't extend specific extra coverage for Alzheimer's or dementia care. Visit the Medicare website for detailed information on Medicare's Alzheimer's and dementia coverage.

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Medicaid

Medicaid is a joint state and federal program that provides health insurance for low-income individuals and families. With each state managing its own Medicaid program, coverage for Alzheimer's, dementia or memory care varies. A critical aspect of Medicaid eligibility is the three-year "look back" period, during which officials may examine financial transactions to ensure no assets were transferred below market value to meet eligibility requirements.

Medicaid typically offers more comprehensive coverage for Alzheimer's or dementia care than Medicare. For instance, unlike Medicare, Medicaid covers some level of assisted living benefits in most states and provides ongoing nursing home care beyond 80 to 100 days.

To benefit from Medicaid for Alzheimer's and dementia care, you must meet the program's income and asset criteria, which differ by state. You can find specific information about Medicaid in your state by visiting their site or calling 1-800-633-4227. Your State Medical Assistance office can also guide you on qualifying for Medicaid. Note that not all providers accept Medicaid, so ensure you verify provider participation before starting treatment.

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Private Health Insurance

Private health insurance offers valuable coverage for Alzheimer's and dementia care, including diagnostic tests, specialist visits and some therapies that Medicare or Medicaid does not fully cover. When choosing a plan, prioritize one that effectively meets the care needs, considering the coverage extent and any additional out-of-pocket expenses. Review your policy thoroughly, be aware of coinsurance rates and deductibles and how the insurance coordinates with Medicare if applicable.

To find the most affordable private health insurance for Alzheimer's and dementia care, identify your specific care needs and budget constraints, then extensively review and compare different insurance plans. Look for policies that offer comprehensive coverage for dementia-related services at the lowest out-of-pocket cost. Utilize online comparison tools, consult with insurance brokers specializing in elder care and reach out to organizations that guide dementia care to gather insights on the best available options.

Support for Veterans With Alzheimer's

Veterans with Alzheimer's or dementia can access VA benefits, even if their condition isn't linked to military service. The Department of Veterans Affairs provides various benefits to help senior veterans with care costs. VA health care programs include medical benefits useful for individuals with dementia, offering assistance from diagnosis to terminal stages. The Aid and Attendance pension benefit can offer up to about $2,230 monthly for qualifying veterans.

Veterans with Alzheimer's or dementia can also benefit from the Veteran-Directed Care (VDC) program that allows veterans to manage their care and choose their providers, including family members. VDC offers a monthly budget for personal care, home modifications, adult day care and caregiver education, placing veterans at the center of their long-term care. For detailed eligibility criteria and benefits information, visit the VA Geriatrics and Veteran-Directed Care pages on the VA website. Also, contact a VA representative for personalized advice since eligibility and benefits can vary.

Government Assistance

Individuals with dementia may qualify for government assistance programs beyond Medicare and Medicaid. These programs aim to provide income support or long-term care services to eligible individuals, including Social Security Disability Income (SSDI) for workers under 65, Supplemental Security Income (SSI) and tax deductions and credits.

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Tax Credit Deductions

Tax credit deductions, such as the Medical Expense Deduction, can help offset care costs. The Medical Expense Deduction allows deductions of unreimbursed medical expenses that exceed 7.5% of their adjusted gross income (AGI). This includes payments for diagnosis, cure, mitigation, treatment or prevention of disease and treatments affecting any body part or function. Other relevant credits include the Tax Credit for the Elderly or the Disabled, which is a credit to individuals who are either age 65 or older or are under 65 and retired on permanent and total disability and who meet certain income limits.

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Social Security

Social Security is a federal program that financially supports retired seniors or individuals who cannot work because of a disability. Benefits, based on earnings history, can be applied for online. The program's comprehensive coverage includes retirement income and disability payments. The benefits one receives are based on their lifetime earnings. You can apply for this program online via the Social Security Administration website. For more details, visit their website or contact 1-800-772-1213.

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Supplemental Security Income (SSI)

SSI offers essential financial aid to disabled adults and children with limited income and assets, including those with Alzheimer's and dementia. To qualify, an individual must have less than $2,000 in net resources and a couple of less than $3,000, excluding primary residences and vehicles. The benefit amount depends on the applicant's state and income level.

Applications can be made online or at local Social Security offices. For more information or to apply, contact the Social Security Administration at (800) 772-1213. Apply early to help avoid delays and potential out-of-pocket expenses.

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Social Security Disability Income

SSDI supports individuals who are disabled and unable to work, with eligibility based on the inability to work and the expected duration of the disability. Benefits continue until the individual turns 65 and is eligible for Social Security retirement benefits.

Employer Benefits for Care

Health insurance benefits, often included in employment packages, may cover long-term care or offer provisions for dementia or Alzheimer's care. Examine policy details closely for any restrictions, coverage caps or clauses related to pre-existing conditions.

Employees can also leverage Flexible Spending Accounts (FSAs) by allocating pre-tax dollars to FSAs to cover eligible care-related out-of-pocket expenses. Employee Assistance Programs (EAPs) can also provide crucial support, offering guidance on caregiving, emotional support and resources to help manage work and caregiving responsibilities. EAP benefits vary, so familiarizing yourself with the details of your program is key.

Community Resources

Nonprofits, community centers, religious organizations and aging councils can aid families in navigating Alzheimer's and dementia care challenges. These groups commonly support home health care supplies, respite care, consultancy, therapeutic activities and medical equipment like wheelchairs.

Alzheimer's Foundation of America (AFA), Alzheimer's Association and Family Caregiver Alliance (FCA) are some notable organizations. They offer direct financial assistance, grants, care programs and a wealth of information and resources, including scholarships for Alzheimer's care. Eligibility for assistance typically requires proof of an Alzheimer's or dementia diagnosis, demonstration of financial need and other criteria specific to each foundation.

Benefits of Early Planning for Alzheimer's and Dementia Care

Planning early for Alzheimer's and dementia care can help you manage financial impacts and ensure that the individual's care preferences are respected throughout the disease's progression. Early planning empowers families to face the challenges of Alzheimer's and dementia with more confidence and preparedness for the future, easing the caregiving burden. The key advantages include:

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    Personalized Care Plans and Support

    Early diagnosis facilitates detailed financial planning and allows individuals to express their care preferences, ensuring their wishes are honored. It also aids in creating tailored care plans and identifying local resources and support services, reducing the financial strain and caregiver burden.

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    Legal and Financial Documents

    Early planning enables individuals with Alzheimer's or dementia to establish trusts and guardianship arrangements and appoint a Power of Attorney (POA). Trusts can strategically manage assets, providing for care needs while ensuring assets are allocated as desired. Guardianship arrangements safeguard individuals' rights, ensuring they receive the care and respect they deserve. A POA allows the designation of a trusted individual to make decisions on their behalf, aligning financial and health care choices with their wishes.

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    Improved Medical Outcomes

    Early planning can lead to better disease management, potentially slowing its progression. Engaging with health care providers as soon as possible allows participation in clinical trials and access to new treatments.

Additional Resources

We've curated a list of resources that can empower you with the knowledge and support needed for well-informed care planning:

  • Alzheimer's Association: This is a leading voluntary health organization in Alzheimer's care, support and research. It provides comprehensive resources, including a 24/7 helpline, educational materials and support groups for patients and caregivers.
  • Alzheimer's Foundation of America: Offers support, services and education to individuals with Alzheimer's disease and their families. The foundation focuses on providing care and improving the quality of life for those affected.
  • Dementia Society of America: This nonprofit organization provides information, resources and support for people with dementia, their families and caregivers. It aims to raise awareness and understanding of dementia.
  • Home Instead: Specializes in providing personalized in-home care services for individuals with Alzheimer's and dementia, ensuring they live safely and comfortably in their homes.
  • National Association for Home Care & Hospice: Represents the interests of home care and hospice organizations and professionals. It provides resources and advocacy to ensure high-quality care at home for people with various needs, including Alzheimer's and dementia.
  • National Institute on Aging: Part of the U.S. Department of Health and Human Services, it conducts and supports research on aging and the health and well-being of older people, including Alzheimer's disease and related dementias.
  • Us Against Alzheimer's: An advocacy organization dedicated to ending Alzheimer's disease through public policy change, community engagement and research funding. It strives for effective treatments and improved care for those affected.

About Nathan Paulus

Nathan Paulus headshot

Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.

Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.

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