Recent surveys indicate that most people prefer to “age in place”—remain in their own home as they age—rather than move to a retirement community. This is not surprising; after all, “home is where the heart is.”
On the surface, staying in your home may seem more cost efficient than moving to a retirement community. But if you dig deeper and do the math, the numbers sometimes tell a different story.
Here is an example:
Suppose your monthly budget in retirement is $4,000, of which $3,000 represents typical non-discretionary expenses such as utilities, homeowners insurance, HOA dues, lawn services, security systems, as well as ongoing home repairs and maintenance. Let’s also suppose that a nearby retirement community offers an attractive villa for an entry-fee of $175,000 and a monthly fee of $2,200. The retirement community offers an array of services and amenities for independent living, as well as access to a continuum of care if you or your spouse needs long-term care services.
At first glance you may think moving to the villa will increase your monthly expenses by $2,200 per month for a total of $6,200, not to mention the entry-fee. However, it turns out that the monthly service fee covers about half of your monthly nondiscretionary expenses. Therefore, the actual increase to your monthly budget is only $700 and not $2,200. [($4,000 – $1,500) + $2,200 = $4,700]
There is still more to consider. The monthly service fee also includes two meals per day, and this cuts your monthly grocery bill by about $150. Now your total cost per month at the retirement community is $4,550.
But what about that entry fee? Suppose you are mortgage-free and your home would net $200,000 if you sold it. This would cover the entry fee of $175,000, with $25,000 left over. Since the remaining $25,000 is no longer tied up in your home you could put it to work in an interest generating account (low interest in today’s environment) or even something like an immediate annuity, which today might generate another $160 per month. Now your monthly cost would be $4,390; only a $390 increase over your previous monthly budget of $4,000.
These calculations assume that you are able to live independently today. However, the reality is that 70% of those over age 65 will require some assistance with daily living activities at some point in their lives, and may eventually need a much higher level of care. Retirement communities such as those described above are typically equipped to provide care at any level, including assisted living, memory care, rehab, and skilled nursing. Depending on the type of contract, such services may even be offered at a discounted rate, which could increase savings further still. Yet, the bigger advantage can be peace of mind, which is often priceless.
Note: This example is for illustrative purposes only. Actual expenses, entry fees and monthly fees could vary dramatically from the figures presented in this example.
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