Choosing a Senior Living Option You Can Afford

shutterstock_89095468Determining the cost of senior living requires more than just a review of your loved one’s finances and the current marketplace pricing. You also need to gaze into the future, taking into account such factors as the impact of inflation, likely projections for your parent’s health and longevity, and what income/assets will be available for senior living expenses.

As you begin the process of determining what your parent can afford, make a tabulation of various income sources and assets. These may include pensions, annuities, IRAs, long-term care insurance benefits, and proceeds from the sale of a home. However, don’t count on government assistance beyond Social Security and veterans benefits.

Argentum (formerly the Assisted Living Federation of America) recently conducted a poll, which indicated nearly one-third of older Americans have done no planning for their long-term care needs, and about 40 percent erroneously believe that Medicare will foot the bill. In actuality, Medicare is not an option for long-term care such as Assisted Living or retirement homes. Medicaid is available in some circumstances, but only after exhausting all personal assets.

“Virtually all expenses must be paid out-of-pocket by residents and/or their families,” explains Mike Gamble, who shares the expertise he gained from his experience as a family caregiver on his website, Our Aging Parents.

The Assisted Living Option

shutterstock_150158387When seeking affordable options for an elderly parent who requires some assistance, you may want to focus on Assisted Living rather than a Skilled Nursing facility. The national average cost for Assisted Living is $43,200 annually, according to long-term care insurer Genworth, whereas the costs of Skilled Nursing facilities can double that amount.

Gamble reports that most Assisted Living communities offer their services “a la carte,” which means you only pay for the services you use. “Most adults don’t need continuous Skilled Nursing care, but many do need help with various activities of daily living such as bathing and dressing,” Gamble says.

Even within the Assisted Living category, prices vary considerably based on such factors as location, amenities, and accommodations. A one-bedroom apartment with an ocean view, for instance, will be considerably more expensive than a studio apartment in a Midwestern town.

Creating a Budget

To help families determine what financial resources they have available for Assisted Living expenses, Gamble has developed a worksheet in which you chart monthly income, long-term care benefits, and converted assets. From there, you subtract any continuing expected monthly expenses (e.g., medical expenses not covered by insurance, clothing, personal care items, laundry, taxes, charitable donations, magazine subscriptions, etc.). The remainder is what you have available for Assisted Living fees.

“When moving into Assisted Living, you’re exchanging one set of expenses for another set,” Gamble explains. “Instead of paying rent or a mortgage for your home, you’ll be paying Assisted Living fees.”

Other fees that go by the wayside typically include utilities, yard work, home maintenance, homeowner’s insurance, real estate taxes, groceries, and transportation expenses. “When you factor all of that in, it’s by and large a fairly even exchange, though Assisted Living may still be a little bit more expensive,” Gamble says.

Some older adults may resist selling their home, Gamble observes, but they’ll typically need the equity built up in the home for the long-term expense of Assisted Living.

Keep an Eye on the Future

Current costs are only one consideration when determining the affordability of Assisted Living. Keep in mind, too, how much Assisted Living expenses will be in two years, five years, or ten years down the road.

“The cost of long-term care has been increasing 4.5 percent per year, which is faster than inflation in general,” says Gamble.

Seniors on a fixed income will not receive a large enough adjustment to compensate for that increase. In fact, Gamble reports that seniors receiving Social Security benefits did not see an increase at all in 2016 because of a net-zero rise in the Consumer Price Index from the previous year. However, the net-zero rise was due in part to lower gas prices, and most seniors drive less than younger people. The effective increase for seniors means their benefits won’t go as far for this calendar year. For reasons such as these, consider the added expense of inflation when creating a long-term budget for Assisted Living.

Other factors to consider are your future health prospects and your potential longevity. If your parent’s health declines to the point that they require Skilled Nursing, you’ll spend twice as much per month as originally planned.

Since planning for your parent’s longevity is not an exact science, Gamble recommends seniors budget enough to cover a 90-percent probability that they will not outlive their money. For example, a seventy-five-year-old man should save enough money to cover 20.6 years of expenses to meet that 90-percent probability, whereas a woman of that age should cover 21.9 years of expenses. Gamble has a complete drop-down chart (scroll down the page to see it) showing the number of years covered by this probability for men and women, ages sixty-five through ninety.

“One of the biggest worries among seniors is that they will run out of money,” Gamble says. “Many seniors want to accumulate assets, so they have money to pass on to their children, but the bigger priority should be having enough money to take care of themselves in their older years.”

Seek Financial Advice

shutterstock_236125216Figuring out how much your family can afford to spend on Assisted Living is not necessarily a do-it-yourself task. For that reason, Gamble has an additional piece of advice: “Work with a financial advisor to assist you in converting each financial asset into a stream of monthly payments.”

With a professional’s help, you can determine the most appropriate senior living option; one that is affordable, comfortable, and suited to your parent’s needs.

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