We all look forward to the stress-free living of retirement. But, as we get older many of us begin to worry about the cost of assisted living.
Like most things we fear in life, we often avoid thinking about it. But, as with a lot of things we worry too much about, the more we know and plan the less scary it gets.
Financial planning for assisted living is no different. In most circumstances, the cost of assisted living is not as daunting as we imagine.
Typically, seniors are moving from a single-family home to an assisted living community. Financially, this is merely a transition from one house to another, and depending on the assisted living community, the monthly expense may not be significantly different. Also, much of the cost of individual health care needs, that come with aging can often be covered by government benefits and insurance.
So, take a deep sigh of relief.
Now let’s look at some of the things you should be investigating as you plan for a potential move to an assisted living community.
Understand What You’re Paying Now
We’ll start our analysis with what tends to be the most enlightening step – running the numbers on your current living expenses.
Even if you have paid your home off, there are substantial monthly expenses necessary to maintain a home, especially for an aging adult. Here’s an abbreviated breakdown of some typical costs.
- Guaranteed Expenses – Property taxes, insurance, and often homeowners association dues
- The Hidden Mortgage – The cost of routine maintenance to preserve the value of your home. Experts suggest that this can run anywhere from 1 to 3 percent of the value of your home. Using an example of a $200,000 home, this is between $2,000-6,000 per year.
- Other Sundry Expenses – Utilities, trash removal, cable, internet, housekeeping, home security, lawn care, snow removal, and on and on.
Plus this list doesn’t even begin to include some of the other costs that get absorbed into the convenience and amenities of most assisted living communities, like transportation, entertainment, dining out, gyms, and country clubs.
Consider What You Will Probably Pay in the Future
That’s a snapshot of what you’re paying now. This insight alone might be enough financial justification to make the switch to an independent living community make sense, but there’s more.
As we age, the cost of maintaining a senior accessible home can become substantial.
There are large projects, like remodeling your floor plans for safety and convenience. For example, most homes would need to widen doors and hallways to accommodate walkers and wheelchairs.
Then there are small projects, like adding handrails, specially designed tubs and showers, heightened toilets, and sinks you can use while seated.
Even these small projects can turn into large ones when your bathrooms and kitchen need full remodels to make them usable as we lose full mobility. These kinds of remodels can easily cost $15,000 each, or more.
Then, of course, there are the inevitable expenses of an aging home – a new roof, replacing heating and cooling systems, a new water heater, repaving the driveway. More money, more money.
Calculating the Value of an Assisted Living Community
With all of your current and forecasted future expenses in-hand let’s compare them to the potential value of moving to an assisted living community.
We often think of assisted living communities as a necessary transition because of health or mobility issues. However, in many cases, the initial decision is more a lifestyle preference made for convenience. These communities offer the ability to downsize your home while often upsizing your lifestyle and quality of life.
Independent living communities, like Kensington Park, are full of amenities – no more worrying about maintenance, housekeeping, and security. Plus, your new community provides opportunities to enjoy new friends, fun activities, enrichment programs, regular entertainment, and exceptional dining.
Common Ways to Pay for Senior Care Expenses
Too many seniors begin to panic when they think about the cost of long-term care. Our minds often mistakenly think of our senior housing expenses like a new expense. Whereas in reality, for most of us, it’s just an extension of our current housing expenses. Most residents of independent living communities have merely moved from their home to an assisted living community and swapped a mortgage for a community residence.
While in many cases financing your senior living is that simple, it’s probably helpful to review all of your options in planning for senior housing expenses. Here are some of the most common ways people finance their transition to an assisted living community.
By far the most common way to finance assisted living is with equity that you have accumulated in your home. This equity, or the amount your home is worth minus any outstanding mortgage loan due, can be leveraged in a variety of ways.
In many cases when someone has reached a time in their life when they are ready to move to an assisted living community, they have paid off their house. In this case, they have an illiquid asset (meaning you can’t use it to pay your day-to-day living expenses) that continues to have a lot of ongoing costs associated with it – taxes, insurance, maintenance. In this situation, it often makes sense to sell the home and use the proceeds to pay for your new assisted living community, which will be a more pleasant and accommodating lifestyle.
In some individual cases, people also consider using a home equity loan or a reverse mortgage to offset some of their senior housing expenses. However, with both of these options the bank or mortgage company typically requires that the home remains as your primary residence. Usually, this makes these financing options less appropriate for someone moving to an assisted living community as their primary residence.
Another common source of financing is investments. Most people have contributed to some form of retirement plan during their working years. These savings and their financial returns can be significant.
Because these investments are often in a variety of different types of tax structures and fund types it’s important that you consult a financial advisor when divesting or using these funds.
When you’re considering the use of investments, a common rule of thumb is to divest in this order:
- Taxable investments, such as dividends
- Required minimum distributions on retirement plans
- Traditional IRAs
- Roth IRAs
Of course, everyone’s investment picture is unique and may also include a mix of non-retirement funds, pensions, annuities, and other insurance products.
Therefore, in all cases consult your financial advisor to determine your best strategy.
Long-term Care Insurance
Insurance is often assumed to be the first place to look for assistance in paying for assisted living expenses. Unfortunately, the name long-term care insurance can be a little misleading. These insurance policies typically reimburse seniors for the cost of assistance with activities of daily living (ADLs). These policies also usually require a health assessment by a nurse or social worker who determines the need for long-term care and requires an approved Plan of Care.
Consequently, long-term care insurance can be helpful to offset the expense of specific special assistance and care, but not necessarily housing expenses.
Using life insurance for assisted living housing can be just as complicated as investments. The insurance industry is full of products to help reimburse expenses later in life, but you need to be guided through the fine print.
Here are some of the types of insurance that seniors use for senior care expenses.
- Life Insurance – many life insurance policies have cash values, which can be converted in a viatical settlement, or have accelerated death benefits (ADBs) options.
- Annuities – these are long-term insurance investments that you can contribute to and then protects that investment by paying out regular payments for the rest of your life.
These are general categories of insurance that can help with the cost of aging, but the insurance industry is continually innovating new products. So, it’s probably worth your while to consult with a financial advisor or insurance specialist to see what products might benefit your particular financial situation.
Trusts are special legal entities and structures that might have been or should be, set up in anticipation of future senior care expenses.
Again, this is a financial option that you should be aware of and might be a consideration in your long-term senior living financial planning. However, because of the broad spectrum of potential circumstances and legal structures any advise on this topic requires the guidance of competent legal or financial counsel.
Senior veterans often use their benefits to help pay for long-term care.
Any disability and pension pay can be used for housing expenses. However, a veteran’s standard medical benefits and Aid and Attendance Allowance can’t be used for direct housing expenses, but they can be used to offset many of the special assistance services that often accompanies assisted living.
For more information on Veterans’ benefits, we encourage you to visit the Veterans Affairs website and review their information on assisted living.
Medicare and Medicaid
Finally, Medicare and Medicaid are federal and state-run programs that assist seniors in covering home healthcare and personal care services.
Depending on your state-determined eligibility your coverage and assistance can vary. Typically, these programs only cover nursing home and personal care services, but some states have begun enacting waivers for assisted living communities.
Steps to Financial Planning for Assisted Living
After this fairly exhaustive review of housing expenses for assisted living communities and all of the potential ways to finance these senior housing costs, it’s time to make a plan.
Here is our simple four-step framework to get your strategy in place and ready to execute.
- Start Planning Early – The secret to any successful financial plan is to start early. Time inherently gives you more options. You’ll have more insurance options, time to contribute to annuities, and time to allow your investments to grow.
- Create a Worksheet – Your first step should be to itemize all of your current housing and living expenses. Then list all of your assets. As you begin to consider assisted living options, these worksheets will give you confidence in your plan and identify areas where you need further financial planning.
- Consult Professionals – Don’t do this critical planning alone. Consult financial and legal experts to structure the best strategy for your specific circumstances.
- Compare the Numbers – With your worksheets and expert counsel assembled, start running the numbers and create a plan to make your senior living future stress-free.
What Questions Can We Answer?
We know, that’s a lot of information to digest. The bottom line is there are a lot of options when it comes to financing your move to a senior living community. But, this should take some of the fear out of paying for future senior living housing and care expenses.
Our staff at Kensington Park is always available to answer any questions about our communities, financing assisted living, and how to become a new resident.
Please, never hesitate or delay your question – contact us anytime.
Schedule a Visit
If your loved one is considering transitioning to assisted living, we cordially invite you to come and see the Kensington Park Difference for yourself, and how we fulfill our promise to love and care for your family as we do our own.
- How to Pay for Long-term Care, US Department of Health and Human Services
- Medicare and Medicaid for Long-Term Care, US Centers for Medicare and Medicaid Services
- VA Nursing Homes, Assisted Living, and Home Health Care, US Department of Veterans Affairs