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April 4, 2016

Planning for the Costs of Alzheimer’s Disease and Dementia

Though the impact of Alzheimer’s disease on families and friends from a lifestyle and emotional standpoint has been well-documented, little research has been done into the financial impact of caring for some afflicted by the disease. To determine the impact, the Alzheimer’s Association conducted a nationwide survey. The results are discussed in the association’s 2016 Alzheimer’s Disease Facts and Figures report.
The association found that care contributors spent an average of $5,155 per year of their own money to care for a relative or friend with either Alzheimer’s or another form of dementia. Spouses and partners spent in excess of $12,000 per year, while adult children spent an average of about $4,800 annually. Food, other groceries, travel and medical supplies (which include adult diapers) were the most common expenses.
There was a wide range of reported costs, with some survey respondents saying their annual expenditures exceeded $100,000. While it would have been useful to see the median (the number at which half of survey respondents reported spending less and half reported spending more) instead of the average number, the data still shows that caring for someone with cognitive impairment is not cheap.
It’s an expense that needs to be considered when saving for retirement, when allocating a portfolio once in retirement and when creating and updating legal documents such as powers of attorney and trusts. Medicare does not pay for assistance with daily living activities such as bathing, even though it covers medically necessary care. Medicaid pays for some long-term care costs, but financial assets must be nearly depleted. Compounding matters is that at just mild levels of cognitive impairment, the ability to manage one’s own finances becomes significantly impaired. Even basic skills such as reviewing a bank statement are adversely affected.
There are some preventive steps you can take. The first is to follow a healthy lifestyle. Exercise. Eat more vegetables. Cut back on sugary and fatty foods. Regular exercise and management of weight, diabetes, smoking and hypertension reduce the risk of cognitive decline. They may also reduce your risk of dementia, according to the research cited by the Alzheimer’s Association.
From a financial standpoint, long-term care insurance covers the cost of assistance with everyday living expenses. The American Association for Long-Term Care Insurance’s 2015 Price Index lists average costs for a 60-year-old couple as ranging between $2,170 and $3,930 per year depending on the amount of coverage. Keep in mind that these are annual costs and, as those of you with long-term care policies can attest to, premiums have been and will likely continue rising. Long-term care companies have also left the marketplace over the past several years.
Another option is to use an annuity. An annuity contract offers the advantage of ensuring a stream of cash flow. If your savings are depleted by medical costs and the expense of caring for a loved one with dementia, an annuity contract can provide a safety net. There are also annuity contracts that offer benefits for long-term care. Stan “The Annuity Man” Haithcock described State Life as an A+ rated carrier offering this type of product for married couples.
A third option is a life insurance policy with a long-term care rider. There will be an additional charge for the rider. You also will need to make sure you fully understand the policy’s structure, including how it’s maintained, what the death benefit is and under what circumstances the long-term care benefits are paid. (Ask as many questions as you need to with all three products to ensure you fully understand what you are buying.)
You can also self-fund the potential costs. The upside is that you avoid the fixed costs of insurance. The downside is that you face large expenses that may deplete or take a big bite out of your savings.
The challenge with medical-related costs is that they are a wildcard. With long-term care products, you are incurring an expense to insure your savings in case you eventually require assistance with daily living activities. The advantage is that you are transferring the risk to an insurance company. The disadvantage is the loss of monetary resources that can be allocated elsewhere. It’s a personal decision that requires assessing your risks of requiring long-term care and your comfort level with the insurance products currently available.
The Week Ahead
Fewer than 10 S&P 500 members are on the calendar as the “official” start to first-quarter earnings season won’t occur for another 11 days. Reporting next week will be: Darden Restaurants (DRI) and Walgreens Boots Alliance (WBA) on Tuesday; Bed Bath & Beyond (BBBY), Constellation Brands (STZ) and Monsanto Company (MON) on Wednesday; and CarMax (KMX) and ConAgra Foods (CAG) on Thursday.
The first economic report of note will be February factory orders, released on Monday. Tuesday will feature February international trade, the March ISM non-manufacturing index and the February Job Openings and Labor Turnover Survey (JOLTS). The minutes from the March Federal Open Market Committee (FOMC) meeting will be released on Wednesday.
Several Federal Reserve officials will speak: Boston Federal Reserve Bank president Eric Rosengren and Minneapolis president Neel Kashkari on Monday, Chicago president Charles Evans on Tuesday, Cleveland president Loretta Mester on Wednesday, Chair Janet Yellen and Kansas City president Esther George on Thursday and Dallas president Rob Kaplan on Friday.

About The Author - Charles Rotblut, CFA is the VP and Editor for American Association of Individual Investors (AAII). Charles is also the author of Better Good than Lucky. (EconMatters author archive here)
The Dolce Whey at Onnit.com!

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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