By Jessica L. Cafferata, JD, CFP®, CDFA®, Callan Capital
Transitioning to a senior living arrangement is a considerable undertaking. Determining when, how, and where to transition, ensuring your loved one’s care, ability to age in place, social and hobby opportunities, and affordability are examples of the many decisions to be made. Your Callan Capital team can help you evaluate your options and model fiscal impact.
Transitioning to Senior Living
If your loved one needs reminders, is not able to perform daily tasks on their own, is increasingly isolated, has lost interest in hobbies, is falling or has mobility challenges, neglects their own care or household maintenance, it may be time to consider a senior living arrangement. However, some seniors transition to senior living arrangements before more advanced care is needed. This can be especially helpful for moving to continuing care retirement communities (CCRC) for lifetime care where payment options may include high entrance fees with limited future costs. Expect push back from your loved ones as this is a major life decision and change. It may take one or two months of resistance for your loved one to get comfortable with the decision and make the change. In our experience, many are pleased with the decision once the change has been made.
Options for Care and Cost
Options for care include in-home care, adult daycare, assisted living, and nursing homes. Most clients prefer to begin with care in their home until more advanced care is needed. There are also continuing care retirement communities where loved ones can age in place (see more detail below). The cost of care since 2020 for assisted living increased 4.65% and 2.41% for semi-private nursing room care costs due to COVID-19, skilled labor shortages, increased demand and supply, and regulatory changes according to Genworth. From 2004-2020, the cost of care rose on average 3.80% annually. Currently, according to the U.S.
Department of Health and Human Services, the median national cost per month for a private nursing home is $9,034, for assisted living $4,500, and for in-home care for a home health aide $5,148. Long-term care insurance, health insurance, chronic illness policies, long-term care riders on life insurance and annuities and Medicaid/Medicaid planning can help towards the cost of care. Veterans may be eligible for long-term care service through the Department of Veterans Affairs. Medicare typically does not pay for nursing home care. Callan Capital can model the impact of a long-term care event on your financial plan. We also collaborate with third-party independent brokers to secure long-term care policies and hybrid policies.
Care in the Home
Most individuals prefer to remain in their home as long as possible. At first, your loved one may only need care for a few hours a day. For loved ones needing a companion only, companion care is the solution. These aides spend time with your loved one and can also help with transportation. Their care is hands off and agencies charge about $24 per hour with half of the fee being paid to the companion. Care minimums are usually 2-4 hours. Homemaker services may be the perfect solution for those needing help with tasks such as cooking, cleaning, and running errands. The national median hourly rate is $26, and that rate has grown over the past five years by 5.39% according to Genworth. Homecare agencies usually require 2-4 hours minimum. Home health aide services are another example of care that may be needed for just a few hours a day. This is personal care such as bathing, dressing, grooming, and teaching how to use a cane or walker. The national median hourly rate for these services is $27 and this cost has also increased over the last five years by 5.92% according to Genworth. Daily rates range from $200-$350 per day depending on the type of care needed and your loved one’s location. Costs can vary significantly based on the state. Overnight care is another option, and those rates may be less expensive as it is assumed that your loved one may not need as much care. Costs range from $120-$200 for 10-12 hours of overnight care according to Aging.com. On average, $4,000 a month on homecare services is spent according to Aging.com. For those who choose to age in place and need nursing home level of care 24 hours a day, seven days a week, monthly costs may be almost $18K according to homecare.org.
To ensure you are hiring the best team for your loved one, we suggest the following:
- Ask for referrals and proof that the staff is insured and bonded
- Consider how long the agency has been in service, the qualifications and experience of employees, staff turnover, and what background checks the agency undertakes
- Ask the agency whether a doctor is on staff to help care workers with treatment plans for your loved one
- If possible, independently engage in a background check and credit screen for your loved one’s caregivers
- At a minimum, complete an internet search with caregivers’ names and look for agency complaints
Consider making modifications to your loved one’s home for safety and comfort. For mobility, your loved one may need a wheelchair ramp, grab bars, a stair lift, wider doorways and low pile carpeting or other flooring. Other changes to consider include bed rails, a walk-in shower, a raised toilet, and accessible light switches. If your loved one has long-term care insurance, it may cover equipment and home modifications. Downsizing the home may be an option, too. Consider a one-level condominium in a senior community that may already have the modifications listed above.
Continuing Care Retirement Communities
For others, moving to a continuing care retirement community to age in place may be the better choice. Buying into a CCRC is a significant financial and lifestyle commitment. Usually, your loved one must be 62 or older and healthy enough to live independently because CCRCs are designed for aging in place. Generally, higher entrance fees and monthly fees equate to more health care costs covered by those fees. Entrance fees are usually between $100K – $1MM (depending on the cost of real estate) with the average entrance fee at $350K.
The fee covers your living arrangements, meals, possibly some care costs, and may also be used towards facility costs, and may or may not be refundable. Additionally, there is a monthly fee (3-4% indexing typically) and the fee varies depending on the facility, level of care, and whether the resident buys or rents their home within the community. This fee is not fixed and can be adjusted for falling facility occupancy rates or even if the facility experiences financial difficulty. Qualifying for a CCRC requires a robust financial vetting as the CCRC wants to ensure that not only the up-front fee is paid but also the monthly fees which will continue to rise. Successful applicants often have total assets of twice the entrance fee and monthly income of twice the monthly fee.
There are three contract options. 1) High Entrance Fees/Lower Future Costs – Entrance fees are high with more limited future cost increases because residents prepaid for more advanced care. 2) Lower Entrance Fees/Higher Future Costs – Entrance fees are lower and offer initially limited assisted living or nursing care and residents’ costs increase in later years. 3) Fee-for-Service contracts – With fee-for-service contracts, entrance fees are lower, but residents pay for care at market rate.
Fees may be negotiable and new CCRCs or those with larger vacancies are typically more open to negotiation. Review the contract carefully as there may be opportunity to reduce rent inflation rate assumptions, medication administration fees, and other service fees. There are third-party intermediaries that can be hired but negotiation is hindered by their one-month rent commission.
Finally, if you itemize deductions on your federal return, you can currently deduct medical expenses that exceed 10% of your adjusted gross income.
CCRC Checklist
Before signing the CCRC contract, consider the following due diligence:
- Tour the assisted living and skilled nursing facilities
- Make sure you schedule a standing date for visits and encourage your loved ones to visit during mealtime as well
- See if the facility allows your loved one to sleep over
- Ask about staff turnover, historical occupancy rate, how the CCRC plans to meet its future obligation, and future expansion of the CCRC
- Search the internet for bad press, bankruptcies, or other red flags
- Callan Capital can help you negotiate the upfront fee
- Request the CCRC disclosure statement, including audited financial statements and a sample contract for review by your accountant, lawyer, and Callan Capital
- Understand the consequences if you cannot afford the monthly fees (i.e., is Medicaid accepted, would the CCRC draw down the refundable entrance fee, is there a benevolent fund that would subsidize your stay, would you have to leave)
- Request the historical monthly fees and understand vacancy rates
- Understand the consequences if you cannot afford the monthly fees (i.e., is Medicaid accepted, would the CCRC draw down the refundable entrance fee, is there a benevolent fund that would subsidize your stay, would you have to leave)
- Request the historical monthly fees and understand vacancy rates
Disclaimer: Callan Capital does not provide individual tax or legal advice, nor does it provide financing services. Clients should review planned financial transactions and wealth transfer strategies with their own tax and legal advisors. Callan Capital outsources to lending and financial institutions that directly provide our clients with, securities-based financing, residential and commercial financing and cash management services. For more information, please refer to our most recent Form ADV Part 2A, and our form CRS which may be found at www.adviserinfo.sec.gov.