Many older adults worry about the cost of senior housingâ€”and with good reason.
Seniors who want to want to move out of their existing homes to communities with more services have several optionsâ€”but they can be pricey. The average monthly rent for independent livingâ€”for relatively healthy seniors who want some support such as meals, light housekeeping and transportationâ€”was $3,304 in the third quarter of this year, according to the nonprofit National Investment Center for Seniors Housing & Care.
The rent for assisted living, a greater level of care that offers assistance with activities such as dressing, bathing and medication management, was $4,947. And many facilities cost much more.
How people pay for senior care depends on their finances and the level of services they need. Many seniors draw on several sources of funds, including personal savings, home equity, long-term-care insurance and government benefits.
Typically, the first source of funding for senior housing is selling an existing home. The proceeds can be used to pay the entrance fee at a retirement community, or to help cover monthly payments. â€śFor most Americans, their house is their largest asset,â€ť says Jamie Hopkins, director of the Retirement Income Program at the American College of Financial Services, based in Bryn Mawr, Pa. â€śSelling it will be the biggest pool of funds theyâ€™ll have.â€ť
Long-term-care insurance can help pay for assisted living. It pays benefits when policyholders need assistance with two or more activities of daily living, such as bathing, dressing or feeding. But it wonâ€™t help cover the cost of independent living, because seniors in those facilities generally donâ€™t need help with two or more daily activities.
The average cost of a long-term-care policy is about $2,600 a year, says William R. Dyess, president of Dyess Insurance Services in Boca Raton, Fla. Rates vary based on an applicantâ€™s age and medical history. Hybrid products combining life insurance or annuities with long-term-care coverage are available as well.
Government-sponsored programs such as Medicaid and benefits provided by the U.S. Department of Veterans Affairs may also be available to help pay for independent and assisted living. Medicaid traditionally has covered nursing-home expenses but some states have enacted waiver programs that allow residents of assisted-living facilities to qualify for benefits as well, says Patrick Simasko, an elder-law attorney in Mount Clemens, Mich. But Medicaid only provides benefits to people whose total assets fall beneath certain levels.
Medicare, meanwhile, pays some medical costs for people age 65 and older and covers short nursing-home stays or hospice care, but not independent- or assisted-living costs.
The VA offers wartime veterans and their spouses extra income under the Aid and Attendance benefit that can help pay for assisted-living care as well, Mr. Simasko says. There are asset and income caps on eligibility.
Affluent individuals who plan to pay for independent or assisted living by liquidating investments or other assets should consult a financial adviser to determine which asset to dip into first. Mr. Hopkins suggests using taxable investments first. After that, he recommends tapping assets in the following order: required minimum distributions on retirement plans, withdrawals from traditional IRAs and, then, funds from Roth IRAs.
Here are some things to consider if youâ€™re planning for future health care needs for yourself or aging relatives.
Start early. Make a list of your assets, and develop a plan on how and when to spend them down. Mr. Hopkins recommends starting to plan in your early 50s. â€śWe donâ€™t see many people buy long-term-care policies or make retirement housing decisions any time before that,â€ť he says. â€śBut thatâ€™s a reasonable timeâ€”if youâ€™re 10 to 15 years out from retirement, all the options are still on the table for products and services at that point.â€ť
Seek professional help. Consult an attorney or financial planner specializing in elder care. An elder-law attorney knowledgeable about government programs can be particularly helpful if you think you may qualify for Medicaid or VA benefits.
Run the numbers. Compare the expenses of homeownershipâ€”including the mortgage payment, taxes, insurance, utilities, maintenance and repairâ€”with the monthly expenses of independent or assisted living. â€śSometimes when you first start looking, you may be a little shocked by the price, but when you compare your home expenses to all thatâ€™s included in either independent or assisted living, you may be actually surprised,â€ť says Mary Sue Patchett, executive vice president of community operations for Brookdale Senior Living, which operates over 900 communities in 47 states. Many communities include meals, transportation, entertainment and additional services in the monthly fee.
How to Divest
When spending down assets, consider divesting in this order, suggests Jamie Hopkins, director of the retirement income program at the American College of Financial Services. Consult a financial adviser for a strategy that suits your finances.
1. Taxable investments, such as dividends
2. Required minimum distributions on retirement plans
3. Traditional IRAs
4. Roth IRAs