What Happens to a Parent's Pension and Retirement Accounts...
Assisted living is expensive. The average cost in the United States is around $4,500 per month. Many families' first question is: what can actually be used to pay for it? Here is how pensions, Social Security, IRAs, and 401(k)s work in the context of assisted living costs.
Quick answers
- Pension and Social Security payments continue , they are income and go toward care costs
- IRAs and 401(k)s remain your parent's own assets , they can be drawn down to pay for care
- Medicaid has specific asset limits , planning well in advance protects what can legally be protected
- VA benefits for wartime veterans can significantly offset assisted living costs
- An elder law attorney can help structure finances to maximize what your parent keeps while qualifying for Medicaid
Income Sources: What Continues Unchanged
Pension payments, Social Security benefits, and annuity income all continue after a parent moves to assisted living. These are income streams, not assets, and they are not affected by the move itself.
In most cases, this income goes toward paying for care. A parent receiving $2,800 per month from Social Security and a pension contributes that toward a $4,500 monthly assisted living bill, with the remaining $1,700 coming from savings or other sources.
If your parent is married and one spouse moves to assisted living while the other remains at home, the division of income between them becomes more complex , and has Medicaid implications. An elder law attorney should be consulted in this situation.
Retirement Accounts: IRAs and 401(k)s
Traditional IRAs and 401(k)s are your parent's assets. They can be withdrawn at any time to pay for care. Withdrawals are taxable as ordinary income in the year they are taken.
Required Minimum Distributions (RMDs) continue on their existing schedule regardless of where your parent lives. If your parent is over 73 (the current RMD age), they must continue taking distributions whether or not they need the money for care.
Roth IRAs are treated differently: contributions can be withdrawn at any time without tax, and qualified distributions of earnings are also tax-free. Roth accounts do not have RMDs during the owner's lifetime.
For Medicaid purposes, IRAs are treated inconsistently by state. Some states count an IRA as an available asset that must be spent down before Medicaid eligibility. Others exclude IRAs that are in distribution status. This varies significantly by state and is one of the key planning points for an elder law attorney.
Medicaid and the Asset Question
What Medicaid Actually Covers
Standard Medicaid does not cover assisted living. It covers nursing home care (skilled nursing facilities). However, many states have Home and Community-Based Services (HCBS) Medicaid waiver programs that cover some or all assisted living costs for eligible individuals.
Waiver programs are state-specific and often have waiting lists. Eligibility requirements, covered services, and approved facilities vary widely. Contact your state's Medicaid office or a certified elder law attorney to understand what is available in your parent's state.
Planning for Medicaid eligibility typically needs to start 3 to 5 years before care is needed to be effective. The 5-year look-back period means asset transfers made within 5 years of applying can trigger periods of ineligibility.
Veterans Benefits
The VA Aid and Attendance benefit is one of the most underutilized resources for eligible veterans and their surviving spouses. It provides up to $2,300 per month (2024 rates) for veterans needing assistance with daily activities , which directly applies to assisted living costs.
Eligibility requires: wartime military service, honorable discharge, and a financial need that does not require Medicaid-level asset spend-down. The income and asset thresholds are more generous than Medicaid.
If your parent or your surviving parent served during a wartime period (including WWII, Korea, Vietnam, and the Gulf War), investigate this benefit before assuming care must be fully self-funded.
Step 1 of 2
How big is the home?
Step 2 of 2
What kind of help is needed?
Estimated Cost
Last step
Where should we look for certified SMMs?
No spam. No sales calls unless you want them. We’ll match you with NASMM-certified professionals near you.
You’re all set!
Thanks, use the cost range above as a starting point when you contact Senior Move Managers near you.
Frequently Asked Questions
Does moving to assisted living affect Social Security payments?
No. Social Security income continues unchanged. If your parent receives SSI (Supplemental Security Income) rather than regular Social Security, the rules are different , SSI has asset and income limits that interact with care costs.
Can a parent give away assets to qualify for Medicaid faster?
Gifts made within 5 years of applying for Medicaid create periods of ineligibility proportional to the amount given. This is the Medicaid look-back period. Improper transfers do not help , they delay eligibility and can leave a parent without resources for care.
What is the best way to pay for assisted living if savings are limited?
Combine all available income sources: Social Security, pension, any VA benefits. Draw down taxable accounts before tax-advantaged ones where possible. Explore Medicaid waiver programs in your state. Consult an elder law attorney about legal asset protection strategies.
Should we sell my parent's house to pay for care?
The house is often the largest asset available. For Medicaid purposes, a primary residence is generally exempt while the person might return home, but becomes countable once institutionalized permanently. Whether to sell, rent, or hold depends on the specific situation , an elder law attorney should advise.
Sources
- Medicare.gov - What Medicare and Medicaid cover for skilled nursing and long-term care
- VA Benefits - VA Aid and Attendance benefit for veterans needing assistance with daily activities
- National Academy of Elder Law Attorneys - Find a certified elder law attorney for Medicaid and benefits planning
What is a Senior Move Manager? A Senior Move Manager is a trained specialist who helps older adults and their families navigate moves, downsizing, and care transitions. They handle the logistics so you don't have to.
An SMM focuses on the physical move and transition. For financial planning around care costs, connect with a Certified Financial Planner specializing in elder care or a NAELA elder law attorney.
✓ 528 NASMM-certified professionals · ✓ All 50 states