How to Pay for Assisted Living & Memory Care

Most common

Savings, income & retirement accounts

Most residents pay from a mix of savings, Social Security, pensions and retirement accounts, according to the National Council on Aging.

• Social Security and pensions. Social Security benefits rise 3.6% in January 2027, the Social Security Administration announced. If a parent can no longer manage money, SSA can appoint a representative payee, often a family member; a power of attorney alone does not cover Social Security funds.
• IRAs and 401(k)s. Withdrawals from traditional accounts are taxable income. Required minimum distributions generally start at age 73. A large withdrawal can raise the tax bracket, so plan withdrawals with a tax professional.
• Investments. Selling taxable investments can create capital gains. Keep records of large transfers, because VA and TennCare both review past transfers if you apply later.

Often the largest source

Selling or renting the family home

Selling turns home equity into a lump sum. Up to $250,000 of gain ($500,000 for married couples filing jointly) can be excluded from tax on a main home owned and lived in for two of the last five years. If the owner could no longer care for themselves and lived in the home at least 12 months of those five years, time in a licensed care facility counts toward the two years (IRS Publication 523).

Renting keeps the house and adds monthly income. Rent is taxable, and expenses such as repairs, insurance and management fees are deductible (IRS Topic 414). Renting for several years can reduce the tax exclusion when the home is sold later, and someone has to manage the property.

Bridge loans & home equity lines

A bridge loan is short-term financing, usually secured by the house, that covers the move and the first months of fees until the home sells. Terms often run 6 to 12 months, with higher rates and closing costs than a regular mortgage (NerdWallet). It solves a timing problem, not an affordability problem.

A home equity loan or HELOC borrows against the home and requires monthly payments. The Consumer Financial Protection Bureau notes that falling behind can put the home at risk and that a HELOC must be paid off when the home is sold.

Reverse mortgages (HECM)

A Home Equity Conversion Mortgage lets homeowners 62 and older turn equity into cash with no monthly mortgage payment while they live in the home. For 2026 the FHA maximum claim amount is $1,249,125 (HUD). Free or low-cost counseling with a HUD-approved HECM counselor is required first: (800) 569-4287.

Important: the home must stay the borrower's principal residence. If the borrower lives in assisted living for more than 12 months in a row and no co-borrower remains in the house, the loan comes due (CFPB).

Check your policy

Long-term care insurance

Most long-term care policies start paying when the insured person needs help with two of six daily activities (bathing, dressing, eating, toileting, continence, moving in and out of bed) or has a cognitive impairment such as dementia, after a waiting period that is commonly 30 to 90 days (Administration for Community Living). Many policies cover assisted living and memory care.

Premiums can be tax-deductible as medical expenses up to age-based limits. For 2026 the limits are $4,960 for ages 61 to 70 and $6,200 for 71 and older (IRS Rev. Proc. 2025-32). Tennessee's Long-Term Care Partnership Program lets qualifying policies protect some assets.

Life insurance & hybrid policies

• Accelerated death benefits. Many policies let a chronically or terminally ill policyholder use part of the death benefit early, often 25% to 95% of it (NerdWallet). Whatever is used reduces what heirs receive.
• Cash value. A permanent policy can be borrowed against or surrendered for its cash value, minus fees.
• Life settlements. The owner sells the policy to a third party for more than its cash value but less than the death benefit. Tennessee requires life settlement providers and brokers to be licensed and to disclose alternatives first (TDCI rule 0780-01-71). Compare several offers and check tax and benefit effects first.
• Hybrid life and long-term care policies pay toward care from the death benefit and leave the rest to heirs. They usually require a large upfront premium (Kiplinger).

Annuities

An immediate annuity turns a lump sum into guaranteed monthly income that can go toward monthly fees. Deferred annuities usually carry surrender charges, and replacing one can restart them. Be cautious about anyone selling an annuity or trust as a way to qualify for benefits: the VA warns that these "pension poaching" sales can cost a family its benefits.

For veterans & surviving spouses

VA Aid & Attendance pension

Aid and Attendance is a monthly, tax-free addition to the VA pension for wartime veterans and surviving spouses who need help with daily activities (VA). Eligibility depends on wartime service, age or disability, and income and net worth limits.

VA pays the maximum minus countable income, and unreimbursed care costs can lower countable income. VA reviews asset transfers made in the three years before a claim. These figures change every December 1.

Free help filing is available from a VA-accredited representative or the Shelby County Veteran Services Office. VA benefits line: 800-827-1000. Nobody should charge you to file a pension claim.

Tax deductions, dependents & HSAs

• Medical expense deduction. Qualified long-term care services for a chronically ill person under a plan of care from a licensed health care practitioner count as medical expenses. Itemizers can deduct medical expenses above 7.5% of adjusted gross income (IRS Publication 502). Memory care residents often meet the chronically ill test. How much of a monthly fee qualifies depends on the facts, so ask a tax professional.
• Claiming a parent as a dependent. If you provide more than half of a parent's support and their gross income is under the IRS limit ($5,200 for 2025), you may claim them and deduct medical expenses you pay for them (IRS Publication 501). The parent does not have to live with you.
• Health savings accounts. HSA money can pay tax-free for qualified long-term care services and, within the age limits above, long-term care insurance premiums for you, a spouse or a dependent (IRS Publication 969).

Family contributions & care agreements

Adult children often share the monthly cost. If a relative is paid for helping a parent, a written personal care agreement at fair pay protects everyone and keeps payments from being treated as gifts later (AARP). An elder law attorney can draft one.

What Medicare & TennCare do and don't cover

Medicare does not pay for custodial care or for room and board in assisted living (Medicare.gov). It still covers doctor visits, therapy and, through Part D, prescriptions for people who live in assisted living, and short skilled nursing stays after a qualifying hospital stay.

TennCare CHOICES is Tennessee's Medicaid long-term care program. It can pay for services, not room and board, at assisted living communities that contract with a TennCare health plan. In 2026 the income limit is about $2,982 a month and the asset limit $2,000, with a five-year look-back on transfers (TennCare). Applications go through the Aging Commission of the Mid-South.