While the prevailing thought is that medical expenses are take the lion’s share of a retiree’s budget, housing is actually the biggest expenditure that seniors face. Housing costs represent approximately 35% of a retiree’s income , while out-of-pocket healthcare expenses account for only 13.2% (www.marketwatch.com). Housing costs are often overlooked when planning for retirement, so it’s a good idea to familiarize yourself with the types of housing and their associated costs.
Aging in Place
Most financial advisors agree that if you intend to “age in place,” meaning you intend to keep your home after you retire, that your home should be paid off prior to retirement. While you will still be responsible for property taxes and insurance, this significantly reduces your housing costs. Bear in mind that additional costs will be incurred if changes need to be made to your home in order to accommodate changes that can occur due to aging. Additionally, you may need to hire help for chores you can do now, such as yard work or minor home repairs.
One alternative to aging in place is selling your home and moving into a retirement community. Retirement communities offer a gamut of living arrangements, from independent living to skilled nursing care. Many allow residents to move from one level of care to another as a person’s needs change.
Independent living allows seniors to live in a retirement apartment, condominium or cottage in a complex that is maintenance free and provides you with many different opportunities for social activities. Many complexes have transportation to shopping and other local attractions. Some even offer day trips for residents. Residents generally pay monthly rent, plus a maintenance fee.
Assisted living allows seniors to have the freedom of living independently while receiving assistance for some activities of daily living, such as dressing, bathing, medication reminders, housekeeping and meals. Assisted living generally uses tiered pricing. Residents who need less assistance pay less than those needing more. Staff reviews residents regularly to ensure they are receiving the level of care they need.
Skilled care provides 24 hour assistance and a nurse is available for medical care. Residents receive therapies as needed and have all meals provided. A doctor is in charge of providing a care plan for their patient, while the center provides all the care necessary.
One of the best ways to help cover the costs of skilled care is purchasing long term care insurance. Financial experts encourage people to have their insurance purchased by the time they reach age 50 (www.alfa.org). Many policies offer inflation protection which helps the policy keep pace with the rising costs of long term care. As with most insurance, the younger you are when you make your purchase, the lower the premium.
The most recent figures for the costs of retirement communities are as follows (www.helpguide.org):
• $1,500 – $3,500 for independent living
• $2,500 – $4,000 for assisted living
• $4,000 – $8,000 for skilled care
By taking steps now to budget for future living needs, you can avoid surprises in living expenses by planning now.