How to manage paying for retirement housing

Assisted- and independent-living communities are expensive, but there are smart ways to find the funding.

  • By Robyn A. Friedman,
  • The Wall Street Journal
  • Living in Retirement
  • Living in Retirement
  • Living in Retirement
  • Living in Retirement
  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
  • Print

Many older adults worry about the cost of senior housing — and with good reason.

Seniors who want to want to move out of their existing homes to communities with more services have several options — but they can be pricey. The average monthly rent for independent living — for relatively healthy seniors who want some support such as meals, light housekeeping and transportation — 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. “For most Americans, their house is their largest asset,” says Jamie Hopkins, director of the Retirement Income Program at the American College of Financial Services, based in Bryn Mawr, Pa. “Selling it will be the biggest pool of funds they’ll have.”

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 won’t help cover the cost of independent living, because seniors in those facilities generally don’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 applicant’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 you’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. “We don’t see many people buy long-term-care policies or make retirement housing decisions any time before that,” he says. “But that’s a reasonable time — if you’re 10 to 15 years out from retirement, all the options are still on the table for products and services at that point.”

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 homeownership — including the mortgage payment, taxes, insurance, utilities, maintenance and repair — with the monthly expenses of independent or assisted living. “Sometimes when you first start looking, you may be a little shocked by the price, but when you compare your home expenses to all that’s included in either independent or assisted living, you may be actually surprised,” 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.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
  • Print
Copyright © 2018 Dow Jones & Company, Inc. All Rights Reserved.
Votes are submitted voluntarily by individuals and reflect their own opinion of the article's helpfulness. A percentage value for helpfulness will display once a sufficient number of votes have been submitted.
close
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
close

Your e-mail has been sent.

You May Also Like...

Behind the rising costs of long-term-care insurance

Long-term-care insurance was supposed to help seniors pay for costly nursing homes and personal aides. Now the industry is imploding. Here's what's at stake for more than 7 million Americans who own the policies.

Why retirees shouldn't let market volatility scare them

What should retirees or soon-to-be retirees do during times of market volatility? Here's how to deal with an unpredictable market and the anxiety that comes with it.

Pros and cons of federal vs. private student loans

Both have advantages and drawbacks. Here's how to decide what's best for you—which could be both.