Ways to figure out whether your savings will cover your care
Cash needs can change dramatically from year to year.
With over 10 million new cases of dementia diagnosed every year worldwide, more and more people are asking, "What's next?" They worry about their cognitive decline and the impact the disease will have on their families.
Beyond the emotional toll, they must confront a practical concern: How will this diagnosis affect my financial future? Dementia is expensive. As the disease progresses, patients and their families incur myriad costs.
If individuals lose their ability to perform their job, they may need to retire early (and possibly lose employer-provided benefits). And while loved ones can double as caregivers, it's often necessary to hire home health aides as well.
At later stages of the disease, moving into an assisted-living community or specialized dementia-care facility can upend a carefully crafted financial plan.
When financial advisers learn that a client has dementia, there's not much they can say to allay the dark emotions that accompany the diagnosis. But at least they can address financial fears.
"We look at their financial situation and stress-test it as much as we can," said Adrian Larson, a Phoenix-based adviser. "We stretch it out until it breaks so that we can weather the storm ahead," and use financial-projection simulations to map a range of possible outcomes.
Just as the rate of decline is hard to predict for those newly diagnosed with dementia, so is the timing of big cash withdrawals. Cash needs can change dramatically from year to year.
"A risk is you might need a large cash outlay, possibly for an entry fee for a memory-care facility or the cost of an experimental drug, in a bad year for the market like 2022," Larson said.
Assess your needs and devise an investment strategy that reflects your situation.
In terms of portfolio construction, there's no bulletproof way to safeguard your assets and maximize your returns once you're diagnosed with dementia. The key is working backward to assess your needs and devise an investment strategy that reflects your situation.
Doug Stokes, a New Orleans-based adviser, poses three questions when counseling clients with a dementia diagnosis:
1. What's it going to cost to cover all your care for the rest of your life?
2. Assuming the base case (i.e., the most likely outcome based on reasonable assumptions), what rate of return will you need to address all your concerns and expenses?
3. What types of investments are best suited to attain the targeted rate of return given your risk tolerance and other factors?
The rate of disease progression affects the ultimate cost.
If clients fret about a dementia diagnosis in their future, advisers may suggest purchasing a hybrid life insurance and long-term care insurance product. These policies cover many long-term care costs that health insurance does not.
The rate of disease progression affects the ultimate cost. Someone who's able to remain at home (most likely with hired help, especially if there are no local family caregivers) might struggle to afford home health aides and other expenses.
On the other hand, someone who undergoes a rapid cognitive decline may need to move sooner into a facility. And paying for a memory-care unit can deplete even a sizable nest egg in just a few years.
While costs for such facilities vary widely across the country, the average monthly price for a room in a memory-care facility was $6,160 in early 2023. Inflation and wage growth has driven up the cost over the past year.
Medicare does not cover the residential bill for long-term memory care or assisted living. There are many additional expenses tied to dementia that Medicare does not cover, such as certain medications, supplies and skilled nursing care over the long run. More bad news: Medicare supplement insurance (so-called Medigap policies) won't plug all these holes.
"A lot of people assume that their health insurance or Medicare will pay for long-term care," said Jalayne Arias, an associate professor in health policy and behavioral science at Georgia State University. "But residential-care cost is often not covered."
Many seniors with dementia wind up depleting their savings to pay for their ongoing care, especially if they move into a facility. Eventually, they may qualify for Medicaid but its coverage may force them to move from a private-pay facility into a Medicaid-approved nursing home.
"Some states offer partnership programs to help bridge the costs as you spend down to Medicaid," Arias said. For example, Washington state residents can access WA Cares Fund to cover some long-term care.
The average life expectancy for someone diagnosed with Alzheimer's disease (the most common form of dementia) is less than 10 years, although some people live 15 years or more. Age at diagnosis and other co-morbidities affect life expectancy.
"There are so many variables," said Larson, the Phoenix-based adviser. "We try to be more cautious and conservative [in our financial projections]. I'd rather help someone plan for the worst" so that they don't run out of money.
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