Should I stay or should I go now?
Whether their clients want to stay in their home or move,
advisors can help make their choice possible.
There is probably no more gut-wrenching issue for seniors than deciding whether to leave the home where they raised their children and lived for decades. In some unfortunate circumstances, a health crisis–a severe fall that results in an injury or a debilitating stroke–necessitates a move from the home.
Yet even if the decision is made because they no longer want the hassle of maintaining a single-family home and look to downsize, it’s never an easy one for seniors and their families.
Advisors can play a key role in aiding them in the decision-making process, either by finding the money needed to fund their housing choice or steering them to the right community or facility. It requires, to a large extent, that an advisor have in-depth knowledge of a client’s financial and health situations.
Moreover, in some respects, deciding on a housing option entails an almost clairvoyant ability on the part of the advisor. They have to look into the future and calculate the cost of caring for a frail senior in the home or another facility. “It’s not just you have this much money today and this is your life expectancy. There are a lot of things that can happen down the road and you have to plan for the contingences,” says Barbara Steinberg, CEO of BLS Elder Care Financial Solutions in Livingston, N.J., which specializes in helping seniors find the money to fund long-term care, whether it be in the home, an assisted-living community or a nursing facility.
Mark Pruitt, founder, president and CEO of Strategic Estate Planning Services in Dallas, says that in most cases, the decision is made over several sit-downs with the client and family members. “It’s an emotional meeting because these people are looking at [leaving] their comfort zone. Their comfort zone is in their own home,” he relates.
So what if a client wants–or needs–to move? How can an advisor guide the person to the best possible choice for that individual? There are many options, both in terms of actual housing models (see sidebar on page 56) and funding sources.
Finding the money
The first step is a thorough review of the senior’s funds and income; then projecting those numbers out into the future, Steinberg says.
Following that, the seniors are presented with various options to see what is the most affordable one. “If somebody wants to remain in their home with 24/7 care versus going into an assisted-living facility, we would do a financial analysis,” Steinberg says. “[We would] say, ok, if you take this option, your money will last so long; if you take that option, your money will last so long. Sometimes, somebody might want to [go into] a CCRC (continuing-care retirement community), which requires a very heavy upfront investment, and it may turn out that doesn’t make sense for them.”
Many times, senior care facilities in the area will refer a recent move-in to Steinberg’s firm. Or she gets referrals from geriatric care managers and/or discharge planners/social workers at hospitals. “They send them to us to help them get all the resources they can to move into the facility,” she explains. “We get a client and they get a [resident].”
All money sources are on the table, Pruitt says. It’s just a matter of which ones will be utilized and determining a fit with the client’s particular needs and wants.
“We’ll look at snapshot of their estate and figure out, do you pull qualified money? Do you pull nonqualified money? Can you mix both? Should you cash out? Should you set up income streams for life? Should you use bonds? Should you use annuities? Should you use a long-term care policy?” Pruitt details. “All of those things have to be looked at and then figuring out how to do it. The bottom line for me is, doing it in the most tax efficient way possible. That’s very important. If they don’t, they’ll pull from the wrong buckets and then they are paying more taxes on money they don’t need to be paying [on].”
For example, if the individual uses an IRA, that money is considered qualified and will be taxed, unlike say, a checking account, cash or a CD, which are considered nonqualifed, Pruitt notes.
Another factor a client and the advisor should consider is whether the senior housing community enables a resident to “age in place.” In other words, a senior may move in healthy and active, but as the years pass, that individual could require Alzheimer’s care. Does the complex have the capacity to handle that? “If the place can’t handle them in the future, then they are going to have to move again,” Pruitt says.
A senior need not move out of his or her home. If they do a reverse mortgage, they can stay in their house and get the funds needed to live on, or finance health care that comes into the home. The only requirements are that the homeowner be age 62 or older and there be sufficient equity in the house to back the reverse mortgage. When the resident no longer occupies the home, the property is sold and the loan is repaid.
Michael J. Zmistowski, RFC, president of First Gulf Advisors, Inc., in Tampa, Fla., says that many seniors and even some advisors have a negative perception of reverse mortgages. Need proof? In Senior Market Advisor’s 2011 senior survey (p. 34), 76 percent of seniors said they would not consider doing a reverse mortgage.
Zmistowski strongly disagrees with that assumption. He contends that a reverse mortgage is simply one alternative that should be explored, not ignored. For some clients, it may be the best possible option, he says.
“Many have a high mortgage payment and that dramatically affects their ability to retire,” Zmistowski says. “As an option in a plan, we have recommended a reverse mortgage and for one reason–it’s because that will relieve the soon-to-retired client of a mortgage payment and let them stay in the home.”
He further points out that the reverse mortgage industry is highly regulated, which should give comfort to advisors and their clients.
According to a study by the MetLife Mature Market Institute and the National Association of Home Builders, more seniors are utilizing a reverse mortgage. As of 2009, about 1 percent, or more than 241,000, of all 55-plus homeowners held a reverse mortgage. Not a great number, but one that nevertheless represents a 54 percent increase from 2007. The average age of a reverse mortgage borrower is 77.
The cost of doing a reverse mortgage has come down, Steinberg adds. However, seniors may have some misconceptions about the product, the top one being they will lose title to the home. That’s not true. “I’ve never had a client that hasn’t been happy with the reverse mortgage,” Steinberg says.
How the funds are distributed is important. Does the client take a lump sum, monthly payments or structure a line of credit? Ideally, you want the money to last for the longest time possible. “You want to make sure that they don’t take so much they run out of equity while they still need it for living or medical expenses,” Steinberg says.
An LTCI policy can pay for health care either in a home or outside of it in an assisted-living complex or a nursing home. But there are some caveats.
For the policy to kick in, the senior must show they are unable to care for themselves and need assistance to perform routine, daily activities, such as dressing, feeding themselves and bathing. Therefore, an LTCI policy is probably of no use if a healthy senior simply wants to downsize into a condo or independent living community.
Much hinges on how the policy is written, what it covers and for how long. Nonetheless, the consensus among advisors is that it’s better to have an LTCI policy than not, and they can aid in the financing of a housing choice.
“For those of our clients who have [the policies], they are wonderful,” Steinberg says, “as long as they have a decent policy. It makes such a difference between them being able afford an assisted living [community]. From what we see, most of them are for assisted living, [but] some of them use it for home care or nursing home care. It just gives you such a financial cushion that it’s well worth it. Even if they just have a couple of years [on the policy], it’s still very beneficial in the long run.”
Steinberg also points out that there are hybrid products available, such as an annuity or life insurance policy that comes with long-term care benefits. “That way, if you never use your long-term care, you still have the annuity to live off of or pass along to your heirs,” she says.
It would be nice if all seniors could stay in their home as long as they wanted or relocate to the living option of their choice on their own terms and in their own time. However, sometimes life intervenes and a decision is suddenly thrust upon them. A debilitating stroke makes it impossible for them to live on their own anymore. They move into an assisted-living facility, but in order to pay for the care, they need to sell their house. In today’s sluggish housing market, the property may linger on the market for quite some time. So how can they pay for assisted-living care in the meantime?
There is one solution: The homeowner–or family members–can take out a special bridge loan up to $50,000 that pays for the assisted-living care until the house sells. On the “sporadic” occasions when a client has needed a bridge loan, Steinberg utilizes the services of Elderlife Financial Services.
“Seniors can’t get loans on their own because they can’t demonstrate they have the income to repay it,” she explains. “So on this particular bridge loan, up to six people can be responsible parties. The children could actually take out the loan, with or without the parents on it. Then as soon as the house sells, whatever money comes in, they would just pay off the loan.”
When you are dealing with members of the Greatest or Silent Generations, you are most likely dealing with someone who has served in the military. Their veteran benefits can be used to fund some type of long-term care need, either in the home, assisted-living facility or nursing home, payable to the veteran himself or the surviving spouse.
According to Steinberg, VA benefits pay between $1,056 a month for a widow and $1,949 for a married veteran.
“A lot of times that will make the difference between being able to afford assisted living, home care or the place of their choice,” Steinberg says. “Usually their money will last another year or two years longer than it would have otherwise [without the VA benefits].”
Know the options
For advisors accustomed to selling annuities and life insurance policies, helping seniors find the right place to live may seem a bit out of their field of expertise. But if an advisor lives up to his title, then advising clients on their housing options and how to pay for them is most definitely part of their job description.
David A. Littell is co-director of the New York Life Center for Retirement Income and the Joseph E. Boettner Chair in Research at the American College in Bryn Mawr, Pa., an institution that educates financial professionals. He contends there is a “knowledge gap” among advisors about housing options for the senior cohort.
“It’s a really sound business strategy to build your senior practice around helping them and knowing about where seniors can find services in the area, knowing the best nursing homes in your area, knowing the best CCRCs,” Littell says. “You may not get paid directly from it but it ties your clients to you and serves you in the long run. The client comes back for other products and services.”
Resources are available. For instance, the American College has free information on housing alternatives and reverse mortgages on its website. The National Council on Aging has a brochure to help seniors decide whether or not they should age in place. There are myriad resources from local organizations to the government to help seniors–and their advisors–find the right care services and housing options.
Senior Housing Property Types
There are many models of housing that suit the senior set. They include:
Active Adult Communities. Restricted to people age 55 or older, these complexes offer for-sale single-family homes, townhomes, cluster homes, mobile homes and condominiums. No specialized services are available, since these communities are usually suitable for seniors who lead an independent, active lifestyle. Outdoor maintenance is included in the monthly homeowner’s association or condo fee.
Senior Apartments. Like active adult communities, these multifamily rental residences only accept seniors age 55 and older. Generally, such properties do not provide meals to residents, but offer other social amenities such as community rooms and activities.
Independent Living Communities. Similar to senior apartments, except that these communities provide more services, including access to meals, housekeeping and transportation. They do not, however, offer assistance with daily living, such as bathing, dressing and supervision of medication.
Assisted Living Residences. For seniors who need more supportive care than they would receive in an independent living community, an assisted living complex aids residents with ADLs (activities of daily living) such as bathing, dressing, eating, walking and medication supervision. They are licensed by the state and sometimes include wings dedicated to those who suffer from Alzheimer’s or some form of dementia. Units are rented.
Nursing Homes. The majority of residents in a skilled nursing facility require 24-hour nursing and/or medical care. In most cases, these properties are licensed for Medicaid and/or Medicare reimbursement.
CCRCs. Continuing-care retirement communities feature a combination of independent living, assisted living and skilled nursing services available to residents all in one campus. Payment plans vary and include entrance fee, condo/coop and rental programs. The majority of the units are not licensed skilled nursing beds.
Source: American Seniors Housing Association and National Investment Center for the Seniors Housing & Care Industry