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.
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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.