What Dementia Care Really Costs and How to Prepare

For many people, one of the biggest fears about getting older is not being able to afford the care they might need, and few conditions have a heavier long-term financial burden than dementia.

You’ve probably heard “Alzheimer’s” used as a shorthand for memory loss in older adults. But Alzheimer's is just the most common type of dementia, accounting for 60% to 80% of dementia cases. Others include vascular dementia, Lewy body dementia and frontotemporal dementia.

Researchers estimate Americans have a lifetime risk of dementia of 42% after age 55.

Why is dementia care so expensive?
One challenge of dementia is its duration. Life expectancies after diagnosis can range from as few as five years up to  20 years or more.

Because the care needs of someone with dementia grow over time, the cost of care does too. Early on, many people live independently with some family support. But as the disease progresses, families may need to supplement or eventually replace informal support with non-medical in-home care. That's paid help with bathing, dressing, eating, giving medications and other tasks that don't require a nurse or physician. It's distinct from medical home health services, which Medicare typically covers.

When in-home care is no longer enough, families usually consider assisted living or a specialized memory care unit before turning to a nursing home for the highest level of care.

For people with dementia, the average stay in any kind of institutionalized care facility is five years.

When you include earlier non-medical in-home care and assisted living, a decade or more of caregiving is a realistic financial planning horizon.

What Does Dementia Care Actually Cost?
Dementia care costs more than many families anticipate. National median monthly costs include:

• Non-medical in-home care: $6,673
• Assisted living: $6,200
• Memory care: $8,019
• Private room in a nursing home: $10,798

Consider an average case, where a person diagnosed at 75 spends three years in assisted living before transitioning to a nursing home for two years. The total care costs could reasonably reach $400,000 to $600,000.

A longer journey, beginning at 65 with in-home support followed by years in memory care, can easily exceed $1 million.

How Do Families Pay for Dementia Care?
There are three financial pathways when a dementia diagnosis enters the picture.

Paying Out of Pocket
Drawing on savings, retirement accounts, or the sale of a home gives you the most flexibility in choosing care. But the financial toll can be severe.

Wealth built over a lifetime may be depleted in a few years, leaving little for a surviving spouse or children.

Long-Term Care Insurance
Long-term care insurance may cover extended care costs once you can no longer perform activities of daily living independently.

Some policies pay a daily or monthly benefit toward home care, assisted living, memory care, or a nursing home for a set period, usually two to five years.

Other policies pay benefits for life up to policy limits, but cap benefits per day. For example, your policy might have a $150 limit per day and a $500,000 lifetime limit.

Long-term care insurance may help offset certain long-term care expenses and may help preserve assets.  However, individuals often consider purchasing coverage before age 60, as eligibility and premium costs may become less favorable over time. Once a dementia diagnosis is in place, buying a policy may be extremely difficult or prohibitively expensive.

Medicaid
For families who have exhausted their savings, Medicaid is the payer of last resort.

To qualify, your income must generally fall below $2,982 per month (individual) or $5,964 (married couple), with minimal assets.

If your income exceeds that limit, you may still have options. Some states allow you to use a Qualified Income Trust that lets you redirect the excess income into a trust, removing it from Medicaid's calculation.

Upon your death, the Medicaid agency receives the trust funds, up to the amount it paid for your long-term care.

Other states handle this through a medically needy program. You pay the difference between your income and the state's medical income standard on care costs, and Medicaid covers the remaining costs for that period.

Once eligible, Medicaid covers 100% of nursing home costs. But not all nursing homes accept Medicaid. Those that do may have limited availability. Also, Medicaid coverage is limited for other types of senior living facilities, with room and board typically not included.

For married couples, the spend-down can leave a healthy spouse financially depleted. Medicaid’s spousal impoverishment rules offer some protection, but they have limits.

The Best Time to Plan Is Before You Need To
A dementia diagnosis is never easy to think about, but the earlier you have honest conversations with your family and your financial advisor about long-term care, the more options you’ll have when the time comes.

A financial advisor can help you think through what makes sense for your situation, well before a diagnosis makes the decision urgent.