Most seniors wish to age in place in their own homes, enjoying their twilight years peacefully. According to data from the American Association of Retired Persons (AARP), 75% of adults aged 50 and above hope to be able to age at home. While this choice is desirable, it comes with some financial issues that may not be immediately apparent.
So, what are these financial issues exactly? From health conditions to the type of housing, a comprehensive plan needs to be put in place that suits one’s lifestyle and financial capability.
The best time to plan is when you are in good health. The more prepared you are before retirement, the higher the chances of successful aging in place. This entails not only making financial arrangements for future care expenses but also undertaking proactive home modifications to cater to safety and convenience needs for long-term residence, which require financial investment.
Ensuring that your home can adapt to evolving needs is crucial, yet many people tend to delay modifications until emergencies arise. For example, if you live in a two-story house with the bathroom on the second floor, based on the structure of stairs, the model of the stair lift chosen, and personal needs, the installation cost of a stair lift generally ranges from $2,500 to $25,000, as analyzed by Lifeway Mobility.
Another option is to plan and expand space on the first floor. According to Home Advisor’s data, the average cost of such expansions is $103,300, with most projects ranging from $37,500 to $117,000. Purchasing a single-story residence is also a viable alternative. If wheelchair access is needed, doorways must be wide enough, and bathrooms should feature accessible showers with safety grab bars.
Some expenses can be tax-deductible as medical expenses (itemized deductions are required). Specific modifications made to meet mobility needs, which do not enhance the home’s value, can be considered medical expenses for tax purposes, according to the Internal Revenue Service (IRS). These expenses must exceed 7.5% of the adjusted gross income (AGI) to qualify for deduction.
Many seniors believe that long-term care will not be needed for them personally, yet the need for long-term care may be approaching. The frequency and intensity of care vary from person to person and typically change over time.
According to LongTermCare.gov, individuals aged 65 have about a 70% chance of needing some form of long-term care and support during the rest of their lives.
The good news is that one-third of today’s 65-year-olds may never need long-term care. However, around 20% of seniors may require five years or more of care.
Both long-term and short-term care can be very costly. Depending on the type of care needed, these services can quickly deplete your retirement savings.
There are two main types of home care providers: homemakers and home health aides.
Homemakers offer non-medical daily life assistance services, including bathing and dressing, household chores, meal preparation, and errands.
Home health aides provide medical support and carry out professional care and rehabilitation services under a doctor’s supervision, often requiring a prescription.
According to CareScout’s data, the average hourly wage for homemakers in the US is $33, and for home health aides, it is $34. However, specific costs vary depending on your location.
For example, in Los Angeles, the hourly costs for homemakers and home health aides are around $37; while in Charleston, West Virginia, these services cost approximately $28 per hour. For specific prices in your area, you can refer to CareScout’s website.
It is important to emphasize again that proper planning is the key to managing these costs. By utilizing various funding methods, you can better protect your savings and retirement funds.
Regular health insurance or Medicare do not cover home health care costs, so these expenses would typically need to be self-funded, and monthly expenses for home health care could exceed $6,000. Long-term care insurance (LTC) is a pre-planned option that can help cover these out-of-pocket expenses.
Long-term care insurance can:
• Cover professional home care costs;
• Partially cover home modification costs as per policy terms;
• Protect income and retirement assets.
It is recommended to purchase long-term care insurance around age 50 to benefit from lower premiums. Waiting will increase premiums, and you may even face denial due to age or health conditions. According to the American Association for Long-Term Care Insurance, while it is possible to purchase LTC insurance at 75, it normally has an age limit of 79.
The cost of long-term care insurance depends on the buyer’s age and gender, with location sometimes playing a role. For example, a single male purchasing a $165,000 coverage at age 60 would pay $1,200 annually; a female of the same age would pay $1,960 (as women tend to have longer lifespans). A married couple at age 60 buying a joint policy for the same coverage would pay $2,550 per year.
Buying earlier would result in lower premiums. For instance, a single male at 55 purchasing the same coverage would pay only $900 annually, while a female at the same age would pay $1,500.
Apart from home care, long-term care insurance can cover costs in a nursing facility.
If your home has significant equity, you might consider tapping into funds through a reverse mortgage. Typically targeted at homeowners aged 62 and above, a reverse mortgage allows you to convert your home equity into cash. Unlike traditional loans, you receive funds from the lending institution rather than make payments to them.
The loan principal and accumulated interest are due for repayment when the last borrower moves out, sells the home, or passes away. According to the Federal Trade Commission (FTC), funds from a reverse mortgage are usually tax-free and do not affect your Social Security or Medicare benefits.
Looking ahead, it is essential to plan in advance how to cover home health care costs in case of illness or the need for assistance. Alongside this, home modifications should also be factored into the plan to ensure that the home environment can adapt to your health and lifestyle needs.
If considering a reverse mortgage, make sure to thoroughly understand the relevant information beforehand. You can consult with insurance agents to learn about long-term care insurance and assess whether it meets your needs.