Here’s what you need to know and the questions you need to ask to be successful when planning for your, or a loved one’s later years.
According to the Us Department of Health and Human Services, 70% of Americans over the age of 65 will need some form of long-term medical care. And, the cost of care can be staggering. According to Genworth, the average cost of a nursing home in Pennsylvania is $121,363 per year! Assisted living runs about $45,000. Most people grossly underestimate these costs. Plus, we are an aging society. Nineteen percent of the US population will be over the age of 65 by 2030 – a group that will comprise all the baby boomers by then. If you are one of them, chances are you might be realizing for the first time that you are getting older. You don’t have quite the energy you once did, the youngest of your children are leaving the nest, and you are thinking about the next phase of your life. More significantly right now, you likely have a parent or two who are in their late 70’s or early 80’s and are now faced with slowing down and unable to care for the family home or have just lost interest in doing so. Let’s tackle them in this blog post, and if you are younger, it will act as a primer for your future. For the years move quickly and you will be faced with similar issues before you know it.
What’s a senior to do? Fortunately, we live in a world of options. Some of us have more than others depending on our financial situation and health status. Let’s take a look at some of these choices:
- Stay Home
You don’t anticipate needing services and if you do you have the resources to hire help. Or if not, you don’t care where you might go when you can no longer care for yourself.
- Cohabitate
You plan on moving in with a friend or family.
- Assisted Living
Move to an assisted living/nursing home facility at some point. You will make the change when you need to.
- Retirement Community
Move to a retirement community. You want to make the change when you can adequately plan for your future.
You have a wide variety of choices when it comes to retirement communities. And, there are many fee structures associated with each community depending on the level of care they provide now and in the future as your needs change.
About one-third of retirement communities are Type C facilities. They offer a fee-for-service model. There may be an entrance fee required or perhaps none at all, and you will pay a higher monthly payment as you move through the different levels of care. Type A contracts, on the other hand, are all-inclusive and represent about 50% of lifecare communities. They are mostly non-profit organizations. You will pay an entrance fee the size of which depends on the size of the unit you choose and the number of people living in it. It could range from $150,000 to $500,000 or more depending on the location and amenities offered. You will pay a higher monthly fee than a Type C contract, and it typically won’t change if you require more care. Costs can range from $2000 to $7000 per month. You are essentially entering into an insurance contract with the community that agrees to care for you no matter what happens. You must qualify financially for entry and there is an independent health assessment to ensure that you are not too much of a financial liability for the community. Many even have a benevolence fund for those who run out of money. The third type of contract is a modified contract or Type B which represents about 20% of retirement communities. It is a blend of Type A & B and the cost of care is added to the base monthly fee but usually at a discounted rate.
It’s important to visit different kinds of communities and understand the financial model of each. And, if you are interested in a Type A community remember that you must pass that medical and cognitive assessment. This is one reason why you might want to begin exploring your options while you are healthy because if you wait you might not be able to gain entry in your preferred community.
Continuing Care Retirement Communities (CCRC’s) can be an excellent lifestyle choice for many as they offer transportation, home maintenance services, while also offering activities and social opportunities. They provide three levels of care – independent, assisted living, and nursing care.
CCRC entrance and monthly service fees can be tax deductible as a medical expense as part of the fee is considered medical related. The financial strength of the community is of utmost importance. Here’s a list of things to look for when you are evaluating the financial strength of a community:
- Is the community non-profit or for profit?
- Is the community accredited?
- Who makes up the management team and board of directors?
- Are you able to review the audited financial statements?
- Do you have access to leadership?
- Is there a resident finance committee?
- What is the occupancy history?
- What is the historical rate of increases to the monthly fee? The national average increase over the past few years has been about 3% annually.
- Is the community profitable and do they have enough cash reserves?
- How do rating agencies view the financial strength of the community?
In addition to the financial aspects of the community, it might be essential to look at the community itself for the answers to specific questions can be quite revealing.
- Is there a refundability clause for the entrance fee?
- What happens if a resident runs out of money?
- Does a resident survey exist?
- How many new residents come by way of existing residents?
- Do the residents have a say in what goes on in the community?
- What is the general impression/reputation on the street?
Remember that our government is not in the business of providing long-term medical care unless you have run out of money. You don’t have many choices on where you go as it usually comes down to open beds. And, Medicare will only pay for 100 days in a long-term care facility, plus there are stringent requirements.
Long-term care insurance is another way to cover future long-term care costs. Policies have gotten very expensive in recent years. Those who have owned policies for years have seen significant increases in premiums and/or reduced benefits. Coverage is usually reserved to cover medical costs and not pay for a particular lifestyle in a retirement community. If you already own a policy and are considering a move to a Type A CCRC where your future medical needs are covered by the entrance fee and higher monthly fee, you may want to hang on to the coverage for a while until you are sure you like the community. After which you could conceivably cancel the coverage. Or, you could hang on to it and use the pool of money to offset some of the monthly fees if allowed or use it to pay for a caregiver. Another option might be to scale back the coverage to reduce the premium that you pay each year to retain a lower level of coverage.
As you can see, there is a great deal of work and numerous considerations that go into evaluating a move to a retirement community. It’s important to plan for the reality of aging and think about a variety of scenarios based on your needs, the kind of lifestyle you desire, and how much you value peace of mind. Plus, think about how much you want to lean on your children for care and support if they even live close by. Even if you are not at the age where you are thinking about these issues for yourself, time over the holidays just might be the perfect opportunity to have the conversation with an aging parent so they are not caught off guard. And don’t forget a good financial advisor can be very helpful in facilitating such a conversation as you might still be looked at as the 20-year-old in a 50-year-old body! Financial advisors are also equipped with knowledge of your financial and personal situation to help you navigate through successfully through the process.
Now is the time to plan. Don’t hide.
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