“Location, location, location” isn’t just a realtor’s mantra. The phrase is just as important to retirees. The decision as to where to live – whether to “age in place” or to do aging in a community or residence designed for other retirees – may well be the single most important financial decision older individuals must make.
Americans overwhelmingly prefer to stay put in retirement, remaining in their homes. Some have no choice: costs of a dedicated retirement community may be out of reach. Others may simply resist change, which is always difficult to navigate as we get older and set in our ways.
But for those individuals and couples who can afford to make the choice on whether to “age in place,” here are some of the most important factors to consider:
- Living arrangements: Married retirees, or singles living at home with other family members, are generally good prospects for aging in place. The primary issue here is safety. As we age, we lose physical acuity in a number of ways: our vision, hearing, and balance are simply not as keen as before. Having others in the home to pitch in on tasks that may become difficult or even dangerous for us – such as making needed repairs or doing heavy cleaning or yard work – means that the home can remain a safe and comfortable place for retirees for years to come.
- Suitability/adaptability of the home to physical needs: Open floor plans and one-level living are obvious wants, and eventually needs, for most retirees. If you want to age in a four-story townhome with narrow hallways and tubs instead of showers, changes may be necessary to make it livable for the long term. As hale and hearty as you may be in your early retirement, you need to be realistic about your physical needs in the future.
- Services in community: How retiree-friendly is the community you now live in? Is it easy to get around by means other than driving? Are good medical providers and facilities easily accessed? Be aware that some communities with a high concentration of retirement-aged residents are designated as “NORCs” – or Naturally Occurring Retirement Communities – which enables them to get special services for their aging-in-place retiree population.
Additionally, there are the financial costs of aging in place that must be considered. For instance, it has been estimated that 70 percent of people over 65 will eventually require some form of caretaking services. Retirees determined to stay in their home therefore need to consider how they will pay for these services. Here are the major options, with some of their associated pros and cons:
- Long-term care (LTC) insurance: Fortunately, most long-term care policies today provide coverage for in-home caretaking services. Unfortunately, however, a 2014 Genworth Financial study found that very few Americans have LTC insurance. Reasons why more people are not getting LTC insurance despite the high likelihood they will eventually need care include: medical ineligibility; lack of liquidity (i.e., surrender value) in traditional LTC policies; and the absence of premium guarantees.
- Financial alternatives to LTC insurance: There are now a variety of alternative financial products that offer some of the benefits of traditional LTC insurance, without some of the downsides. For example, a fixed or variable annuity with a LTC rider can be purchased, as can life insurance policies. These alternatives address the “use it or lose it” character of LTC policies – i.e. the fact that if you do not need the care during your lifetime, all the premiums have been paid for naught. The downside is that these hybrid policies are considerably more expensive than straight LTC insurance.
- Reverse mortgage: Rent or mortgage payments, property taxes, and depreciation may make staying in the home while receiving LTC services more expensive than the annual costs of a nursing home or continuing care facility. One way to access money that is otherwise locked up in the home is to take out a reverse mortgage, and use the loan proceeds for LTC services. Reverse mortgages have, fortunately, become less expensive and more-mainstream as a financing option for retirees, but there still can be pitfalls involved, such as possible loss of the home if the stipulations of the mortgage agreement are not met.
- Assets: Some retirees may have sufficient net worth to fund the costs of aging-in-place, including any needed long-term care, from their financial assets. These costs are highly variable, depending on the amount and duration of any needed home services, but at the high end, they can easily run into hundreds of thousands a year. Meeting that level of annual expense requires considerable liquidity – keeping assets in short term bonds, CDs, or money market – which may preclude investment in higher returning growth assets.
- Medicaid: Finally, there is a last-resort option that few retirees like to think about – namely Medicaid. Unlike Medicare or private health insurance, Medicaid does provide for caretaking services in the home, but only for those aging-in-placers who have exhausted most of their net worth.
Clearly, while aging-in-place is the preferred option for most retirees, it isn’t necessarily the best option from a financial point of view. It requires taking a realistic and non-sentimental view of the potential costs that may be incurred in retirement, and comparing them to the costs of other, less familiar and comfortable options. Advice from a CFP® professional is definitely called for. In fact, don’t stay home without it!