Most of us dream of aging in place, staying in our homes until our final days. There’s comfort in familiar surroundings and a sense of control that comes with being in our own space. But as we age, reality often shifts this ideal.
Home maintenance becomes overwhelming. Daily tasks like meal preparation, managing medications, and personal care grow more challenging. Even with in-home care, many people feel uncomfortable having healthcare providers in their private space.
As a financial advisor, I’ve recently worked with several clients exploring the move from their homes to senior living facilities. Each situation is unique, with different needs, financial circumstances, and health requirements. Understanding your options—and their costs—is essential for making an informed decision.
Types of Senior Living Facilities
Assisted Living Facilities
Assisted living provides support for daily activities while maintaining independence. Many facilities offer memory care within the same complex, allowing for seamless transitions if needed.
What’s included: Most assisted living facilities charge a monthly fee that covers housing, meals, and activities designed to keep residents active and engaged.
Insurance coverage: Long-term care (LTC) insurance often covers much of the monthly fee. To qualify, residents must demonstrate they cannot perform at least two activities of daily living without assistance or have cognitive impairment requiring supervision.
Memory Care Facilities
These specialized facilities serve those with Alzheimer’s or other forms of dementia. They feature secure environments and specially trained staff to prevent residents from leaving without supervision (known as “elopement” in healthcare settings).
Cost considerations: Memory care tends to be the most expensive senior living option due to specialized care and higher staffing requirements. Expect additional costs for nursing support, medication management, and therapy services.
Continuing Care Retirement Communities (CCRCs)
CCRCs offer multiple levels of care on one campus, from independent living through skilled nursing care.
Pricing models: Most CCRCs require a significant entrance fee or buy-in amount, which varies dramatically even within the same geographic area. These fees are often 50% or 80% refundable to heirs, with some facilities offering declining balance options.
Important note: Since entrance fees don’t grow during your residency, there’s an opportunity cost to tying up these funds.
Financial Planning for CCRCs
Funding the Entrance Fee for CCRCs
For most seniors, selling their home provides the funds for a CCRC entrance fee. However, you might also use:
- Sizeable brokerage accounts
- Trust account funds
- A combination of home sale proceeds and investments
Tax Considerations
Facilities should provide information about what percentage of entrance fees and monthly costs qualify as medical expenses. These may be tax-deductible if they exceed 7.5% of your adjusted gross income (AGI).
Budgeting for Monthly Expenses
Let’s walk through a practical example of how to evaluate monthly costs:
Step 1: Calculate Your Monthly Income
Add up income from:
- Social Security
- Pensions
- Annuities
- Required minimum distributions from retirement accounts
Example income: $8,000 per month
Step 2: Determine Total Monthly Facility Costs
- Base monthly fee: $6,000
- Additional facility expenses (cable, internet, parking): $200
- Continuing personal expenses: $1,500
- Medicare supplemental insurance
- Other insurance premiums (LTC, life insurance)
- Cell phone, car insurance, maintenance, gas
Example total monthly fixed expenses: $7,700
Step 3: Add a Cushion
Include extra funds for discretionary expenses like clothing, toiletries, and travel.
Example monthly discretionary expenses: $700
Example total monthly expenses: $8,400
Step 4: Identify Any Gap
In this example, the resident needs an additional $400 per month ($8,000/month income vs. $8,400/month total expenses). Can this be sustainably drawn from investment accounts?
Making the Transition to Senior Living
Moving to a senior living facility involves significant downsizing—a daunting prospect for anyone, especially those who’ve lived in their homes for decades. Most people need help from family, friends, or professional moving services that specialize in senior transitions.
Consider timing
Couples often delay the move because the healthier spouse can care for their partner. Seniors with dedicated family nearby may not face the same financial pressures. However, even without financial concerns, senior living facilities can offer valuable social engagement and peace of mind.
Next Steps
If you or a loved one is considering a senior living facility, speak with your financial advisor. Together, you can develop a comprehensive plan that evaluates your unique circumstances, explores funding options, and ensures you can make this transition with confidence and financial security.