Projecting the costs of aging in place

Shelly Gigante

By Shelly Gigante
Shelly Gigante specializes in personal finance issues. Her work has appeared in a variety of publications and news websites.
Posted on Jun 11, 2020

That the vast majority of older adults would prefer to age in place is no surprise. By staying in their own homes for as long as possible, instead of moving to an assisted living facility or nursing home, seniors are able to preserve their independence and stay connected with their local community.

The age-in-place plan can also potentially yield a significant cost savings, especially if they remain healthy and their mortgage is paid off.

A 2018 survey by the AARP found that three-quarters of adults age 50 and older wanted to stay in their homes and communities as they age, but many (59 percent) believed they may not be able to do so.

There are challenges, to be sure. During their sunset years, many adults need help with household chores, transportation, and medical care. The costs associated with aging in place vary widely, depending on:

  • Your health and physical ability
  • Whether you have a support system of family and friends
  • The renovations that may be needed in your home
  • Whether you have resources for home health aides

Planning ahead for future expenses is paramount.

“If you’re thinking of staying in your own home as you age and not going into a facility, you really need to start preparing for that in your 40s and 50s,” said Laurie Madenfort, a financial professional with Coastal Wealth in Fort Lauderdale, Florida, in an interview. “I talk to a lot of clients who say they plan to move in with their kids or that their son will come over and take care of them, but you may still need to use home health services. You need to begin saving early so you have that bucket of cash available for that purpose.”

Calculating the cost of care

The amount you may spend to age in place depends largely on the level of care you need, which will likely shift over time. You may need very little outside assistance in your 60s and 70s, but find that managing your bills, house cleaning, and driving to doctor’s appointments becomes more difficult in your 80s and beyond.

“If you do not need 24-hour care, you could potentially save money by aging at home, but for those who need round-the-clock help, perhaps because they have Alzheimer’s disease or dementia, staying at home and paying for a home health worker could be cost prohibitive,” said Madenfort.

A major factor in your financial projections will depend on whether you have a spouse, adult child, or close friend who is willing to assist with activities of daily living, such as making grocery store runs, preparing meals, and helping with personal care.

Families are the single biggest source of support to older adults and the cheapest form of caregiving. According to the National Alliance for Caregiving and AARP, 53 million Americans provided unpaid care to an adult age 50 or older in 2020, typically a parent, parent-in-law, or spouse.2 (Learn more: Keeping caregiver costs contained).

If your loved ones live far away, or are not in a position to provide unpaid care, you may need to hire a home health aide. That can get costly, depending on how often you require their services.

To determine your own costs of home care, the nonprofit group Paying for Senior Care suggests estimating the number of hours per month that home care may be required. Then, multiply that by the average cost of home care in your state.

Nationally, the average hourly cost of home care through a home care agency, it found, ranges from roughly $16 per hour to $28 per hour, depending on the local cost of living.

Independent caregivers generally charge 20 percent to 30 percent less than home care agencies, but that means the hiring family must assume the responsibility of being an employer, which includes hiring and handling payroll. There are services available that can help simplify the process and deduct for Social Security and other taxes, for a fee.3

Genworth reports that, on a monthly basis, those needing home health aide services incur a median cost of $4,385, compared with $4,051 at an assisted living facility and $7,513 for a semiprivate room at a nursing home facility. Those needing only part-time adult day care services pay roughly $1,625 per month.4

There is much to consider when weighing the pros and cons of aging in place versus paying for care at a facility. From a purely financial perspective, Paying for Senior Care offers a general rule of thumb: If you need 40 hours or less per week of paid home care, it is generally less expensive than assisted living.5

Renovating your home

Remember that if you choose to age in place, you may also incur the expense of retrofitting your home to accommodate your needs and ensure your safety. That may mean spending only a few hundred dollars installing handrails in the bathroom or nonslip flooring. Or, it could involve more costly updates, such as widening doorframes for wheelchair access, adding a bedroom or bathroom on the first floor, or lowering kitchen cabinets.

According to Retirement Living magazine, it costs an average of $5,000 to install a walk-in tub or shower, $8,000 to install a stair lift, $18,000 to adjust kitchen countertop height, and $14,000 to remodel a bathroom.

Beyond the cost of home health services and renovations, seniors planning to age in place should also budget for housekeeping and meal deliveries, which may be needed as well. Those in a single family home may also have to pay for yard maintenance, higher utility bills to heat and cool their home, and higher property taxes.

Your home may be a source of cash

To help cover expenses during their golden years, some seniors use their home as a source of income.

For example, if you are age 62 or older and own your home outright, or owe very little on it, you can potentially tap some of that equity with a reverse mortgage.

Much like a cash advance, a reverse mortgage enables you to convert a portion of the equity in your home into cash (generally tax free) that you can spend however you like, including handling medical bills or paying off your credit cards.

Under a reverse mortgage, you still own your home and get to continue living in it, and you do not need to repay the loan until you no longer use the home as your primary residence. Then, when you move out or pass away, the loan must be repaid, generally by selling the home.

But be aware that your home is the collateral on that loan. You must continue to pay the property taxes and insurance costs and maintain your home or the lender can potentially foreclose on the home. (Learn more: Reverse mortgages: What you need to know)

“For most seniors, the equity in their home is their biggest asset,” said Madenfort. “A reverse mortgage may be one way to stay in your home, but they do come with a lot of fees. You should always perform your own due diligence so you understand the pros and cons.”

Some seniors, she said, also consider selling their highly appreciated homes and using a portion of the profit to purchase a smaller, more affordable residence, which can reduce maintenance expenses and liberate cash to cover other expenses.

If the real estate market is soft when you wish to sell, or you hope to preserve the equity in your home for future heirs, another option is to rent out your home while you move to a smaller property. Or, rent out a room in your house while you remain living there. Being a landlord, however, comes with drawbacks of its own. Be sure to consider whether the income is worth the potential hassle of chasing down rent payments, or sharing your kitchen with a renter. (Related: Downsizing in retirement, is it better to rent or own?)

Resources for care at home

Your out-of-pocket costs for both home health care and assisted living facilities will also depend, in part, on whether you have insurance coverage to help pay part of the tab.

Medicare, the federal health insurance program for those age 65 and older and certain disabled individuals, and most private health insurance plans do not reimburse for assisted living services. That said, Medicare may, in certain limited cases, cover home health services such as part-time skilled nursing care and physical, occupational, and speech therapy.

Lower-income individuals who qualify for the federal-state health insurance program Medicaid may potentially have coverage for home health care. The program generally covers in-home health care, as well as certain residential and assisted living care services, and nursing home care.

Financial assistance may also be available through the Programs of All-Inclusive Care for the Elderly under Medicare and Medicaid, which is designed to help seniors meet their health care needs within their community instead of going to a nursing home or other care facility. Under the program, families get paired with a team of health care professionals, who work together to help them coordinate the care they need. PACE organizations provide care and services at home, in the community, and at regional PACE centers.

Additionally, those with long-term care insurance policies, which may reimburse policyowners for services to help with activities of daily living, should review their policy to see whether at-home care is covered. Madenfort, who said those planning to age in place may wish to consider such coverage, noted that long-term care insurance policies can be cost prohibitive if not purchased early on before health issues begin. (Related: Is paying for long-term care part of your retirement plan?)

If you are not in immediate need of long-term care or home health aide services, but wish to consider how to plan for it, a financial professional can help.

Aging in Place (AIP) programs

Keep in mind that you may not have to choose between aging at home and the one-stop-shop amenities of an assisted living facility. Some neighborhoods have embraced communal living for seniors.

For example, the national Village to Village Network helps establish communities across the country where members can age safely and successfully in their own homes, combat social isolation, maintain interdependence, and have access to transportation, health and wellness programs, home repair services, and social and educational activities.

The Villages, which are run by volunteers and paid staff, are self-governing and self-supporting. Most are nonprofits, but some are operated by a local senior services organization. They are funded through membership fees and donations. For some, such communities are a good alternative to assisted living facilities.

Conclusion

Getting old does not come cheap, but it does not necessarily require a loss of independence either.

Those who wish to avoid moving to an assisted living facility or nursing home must plan ahead, save for future expenses, and consider all of the resources at their disposal to get the care they need in the setting they prefer.

Discover more from MassMutual…

How to prepare for diminished mental capacity as you age

Be on guard: 3 common senior scams

Understanding 1035 exchanges

__________________________________________

 

 

AARP, “2018 Home and Community Preferences: A National Survey of Adults Ages 18-Plus,” August 2018, revised July 2019.

The National Alliance for Caregiving and AARP, "Caregiving in the U.S. 2020.”

Paying for Senior Care, “Home Care Financial Assistance and Payment Options,” August 20, 2019.

Genworth, “Cost of Care Survey,” 2019.

Paying for Senior Care, “Calculating the cost of Assisted Living vs. Home Care,” August 22, 2019.

The information provided is not written or intended as specific tax or legal advice. MassMutual and its subsidiaries, employees, and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of MassMutual.