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Aging in Place: Considerations for Retiree Clients

Assisted living facilities are running short on rooms, but most boomers want to age in place. A recent Georgetown University study found that 91 percent want to stay in their homes, and that 96 percent want to be “as independent as possible” as they grow older.

With so many healthy 50- and 60-somethings, it’s easy to see why retiring clients would want to keep their homes. They’ve spent decades establishing themselves in their communities, and without serious health concerns, the burden of a move may outweigh the convenience of assisted living.

There are plenty of bottom-line benefits to aging in place, as well. Most retirees have paid off their mortgages; it may be cheaper to age in place than pay thousands of dollars per month for an apartment in a retirement community – far cheaper, in some cases.

Still, aging in place is not without its costs – nor is it feasible for every retiree. Between home maintenance, property taxes and the potential need for long-term care, even a paid-off home can be expensive and tough to manage. Moving later in retirement is also far from ideal, and clients need to plan for the long haul – not just the healthy years.

Considerable costs

A room in an assisted living facility costs, on average, over $3,600 per month, which can increase dramatically in higher-end communities and more expensive states. Still, that figure may include meals, maintenance, utilities and other living costs, and it can become expensive to cover those necessities in your own home.

HOA fees and property taxes can also chip away at a nest egg. Some retirees still have mortgages to pay. Many people may also have to renovate later in retirement in order to maintain a livable home. Even a simple stair lift can cost several thousand dollars; major remodels can be five-figure affairs.

For many retirees, however, in-home care may be the greatest potential cost. Homemaker services and home health aides each average $3,813 per month – even more than some assisted living facilities. While many clients won’t need around-the-clock – or even daily – care, the combined costs of even part-time care and home ownership can become too much for older retirees to bear.

Still, those costs may not deter your clients from their desire to age in place.

“My experience is that, unless it’s beyond their means to afford, [retirees would] still prefer to renovate and have caregivers come to their homes,” says Ken Moraif, senior advisor at Money Matters. “Familiarity overrides price.”

In these cases, it’s important to make sure clients at least understand the potential costs so they can adjust their budgets and drawdown strategies accordingly.

Taxes and assets

For clients in retirement communities, long-term care insurance may be an effective, non-taxable way to cover the costs of living. When aging in place, however, “you need to have a plan based on after-tax income rather than gross income,” says Jerry Golden, founder and CEO of Golden Retirement. Social Security, 401(k)s and other income streams are taxed as usual, but if your clients draw from their accounts to pay for renovations, in-home care or other expenses exclusive to homeowners, they’ll have to plan for higher taxes.

Home ownership, on the other hand, offers tax benefits.

“Some people would say never to have a mortgage in retirement, but I wouldn’t necessarily agree with that,” says Golden. “It’s one of the few deductions that may survive as the tax law changes.”

Medical expenses, including in-home care, are also deductible once they exceed 10 percent of a client’s income – “something you rarely use in your working life, but [which] can be very useful in retirement,” says Golden. And while a higher taxable income may raise Medicare premiums, a primary home does not disqualify a client from Medicaid.

Funding options

 “I’m a big believer in funding late-retirement income needs with plain old, boring income annuities,” says Golden. “Longevity isn’t a risk you should be taking, and something like a QLAC [qualified longevity annuity contract] allows you to buy the annuity out of your IRA.”

Still, Moraif cautions, “if a person has a large enough investment portfolio to finance their own retirement, they should do a cash flow analysis and create an income plan from their investments.”

Though controversial, a reverse mortgage can also help retirees remain in their homes.

“Forget about the negative press and look at it as a financial instrument,” says Golden. “If properly used, it allows people to fund expenses they couldn’t otherwise afford.”

No matter the funding vehicle, it’s important to plan for a long lifespan.

“A lot of planning fails to look at the expenses and needs in the late stage – 85 years to life expectancy,” says Golden. This critical time is when clients encounter the greatest costs – and without a home sale or continuing care agreement to fall back on, people aging in place need to have planned accordingly.

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