As they have at every juncture in their lives, the demographics of the American Baby Boom generation are once again changing cultural norms. This time, the change is a “silver tsunami” encapsulated in the term “Senior Living.”
Generally classified as the population born between 1946 and 1964, the first of the Baby Boomers turned 65 in 2011. Not only are many of them retiring and collecting Social Security, these Boomers are also looking for long-term residential living options better suited to their lifestyle changes. This swell in demand is creating many different choices, as well as a new financial question: how will we pay for this?
The term “Senior Living” covers the spectrum of living options available to retirees, and can be broadly categorized in three types of facilities:
- Nursing homes;
- Assisted care facilities;
- Independent living communities.
These three facilities reflect differing levels of care and independence.
Nursing homes are more commonly referred to as skilled nursing and rehab centers. Nursing care is typically provided for people who need long-term care, or rehabilitation from surgery or recovery from a severe medical condition like a stroke.
Long-term care in a nursing home is for older adults who need around-the-clock nursing care. These residents need help not only with basic ADLs (activities of daily living) but need the supervision of staff to maintain their safety. Residents typically live in private or shared accommodations, often with bathrooms shared between patients or even between two rooms.
Nursing home care is usually the most expensive type of care due to the personnel and equipment required to maintain patient care. According to Chris Orestis, in an April 2011 article for the Life Care Funding Group, the national average cost for a nursing home is currently around $6,000/mo. For long-term care residents, private funds, Medicaid, and long-term care insurance are the typical methods of payment.
Assisted care facilities are a residential option for seniors who want or need help with some of the activities of daily living, but are still able to manage most aspects of life on their own. A typical assisted living facility will provide three meals a day served in a common dining area, housekeeping services, transportation, access to health and medical services, and security, as well as exercise and wellness programs and social and recreational activities.
The cost for assisted care facilities is a monthly rent, plus additional fees based on the level of individual attention the resident requires. According to the American Elder Care Research Organization, the 2011 national monthly average cost of assisted care was $3,477/mo. with a range of $2,156 to $5,757. Depending on the definition of terms and a resident’s condition, a long-term care insurance policy may cover some or all of the costs, but most long-term residents pay for assisted living from personal assets.
Independent living communities may be retirement communities, retirement homes, senior housing or senior apartments. These housing arrangements, from apartment-style living to freestanding homes, are designed exclusively for seniors, generally those age 55 and over. The physical arrangement is friendlier to older adults, often being more compact, with easier navigation, little or no maintenance responsibilities, and security. While some care services may be available, residents must have the ability to live independently, according to terms defined by the facility.
The costs for independent living facilities will vary, from government-subsidized rental units for low-income seniors to retirement homes requiring an initial investment as well as monthly fees. In some instances, a portion of the initial investment may be refunded to the resident when he/she leaves the facility.
For seniors considering an independent living retirement community, all of the funds will come from personal assets; neither government programs like Medicaid or individual insurance coverage will apply.
Continuing Care Retirement Communities (CCRC) are all-in-one facilities that provide a continuum of care from independent living to assisted living to skilled nursing, typically as a complex of buildings on one campus. CCRCs are designed to enable seniors to remain in a single residential location, which is attractive for seniors with declining health conditions, or couples in mixed health. While CCRCs offer much for seniors, they are the most expensive senior living solution available. The typical CCRC requires a one-time entrance fee and monthly maintenance fees. Entrance fees range from $60,000-$120,000 and monthly maintenance fees from $400 to $2,500. Some facilities offer return-of-capital guarantees and long-term insurance as part of their pricing structures. These options guarantee some assets will be left to the resident’s estate, and make future medical expenses a fixed cost.
A common funding paradigm for independent living communities is to sell one’s existing home, then use the proceeds to pay for the initial buy-in purchase. Monthly facility expenses are structured to equal a retiree’s Social Security income, leaving other needs and wants to be paid from savings. Many facilities will offer the option of financing the initial fee through a short-term bridge loan drawn against the equity in the applicant’s residence. When the house sells, the facility is repaid from the proceeds.
Navigating the Funding Maze of Senior Living
The type of senior living arrangements, the amount of the individual’s assets, and the availability of insurance all figure prominently in determining how to pay for senior living arrangements. And many of these decisions can have significant financial ramifications, so each step should be carefully considered, with input from family members and trusted advisers.
While almost all seniors are covered by the federal government’s Medicare and Medicaid programs, one’s eligibility to receive benefits, particularly Medicaid, is dependent on one’s assets, or lack of assets. Attempting to preserve assets for heirs and qualify sooner for Medicaid, some individuals reposition, gift or liquidate assets in anticipation of going to a nursing home. While Medicaid allows a spouse to keep some assets, the agency also has the authority to “claw back” assets it feels were removed or transferred incorrectly. To find out how these rules apply, you or a family member may need to consult an informed counselor or a qualified elder law attorney.
Some of the payment programs offered by Continuing Care Retirement Communities are essentially “housing annuities.” For a lump-sum and a fixed monthly cost, housing (and in some cases, long-term care) are guaranteed for life. Similar to purchasing a regular annuity, the individual is exchanging control over one’s assets for a certain outcome, and must weigh the costs and benefits of surrendering control and receiving a guarantee. And just like an annuity, the options for revoking a senior living agreement are limited once the program has begun.
Other assets may be in play as well. Owners of life insurance policies may have the option of exchanging them for long term care benefit plans. In a January 5, 2011, article (“Funding Long Term Care with Life Insurance,” lifehealthpro.com), Orestis notes that several states have passed laws in which…
“life insurance companies are legally required to inform policy owners older than 60, or if they have a terminal or chronic condition, that they have eight alternative options to consider before lapsing or surrendering a policy – and one of them is converting a life insurance policy into a long term care benefit plan.”
This arrangement is similar to a life settlement, and is brokered by a “senior care company.” Orestis states that this agreement “will convert any form of life insurance to pay directly for the costs of long term care in a nursing home, assisted living facility and home healthcare. (The) option also allows the owner to preserve a portion of the death benefit throughout the spend down period, protecting it from Medicaid Recovery legal action against the estate.”
If you or your parents are considering entering into a senior living arrangement, it is strongly recommended that you seek input from your team of financial professionals. A 2009 paper published by J. Carl Holowaty declared that “moving into an institutional care facility is possibly the single most disruptive event to patterns of social engagement that a person could experience (ranking maybe even higher than the death of a spouse).” Knowing how to best use assets and quantify costs can go a long way toward making a good decision, for you or your extended family.
IF YOU OR AN EXTENDED FAMILY MEMBER ARE CONTEMPLATING A SENIOR LIVING ARRANGE-MENT, A GOOD PLACE TO START IS A REVIEW OF YOUR ASSETS, AND HOW THEY MIGHT BE USED FOR MAXIMUM BENEFIT.