If you have ever watched the popular CNBC program The Suze Orman Show, you have no-doubt seen the segment she does called “Can I Afford It?” Viewers call in and tell Suze, a financial expert, what purchase they would like to make–from swing sets to cosmetic surgery to trips around the world. They then go through details of the caller’s current financial situation, and Suze gives her two cents on whether they are financially secure enough to buy the item.

Many seniors would probably like the opportunity to ask Suze if they can afford to move to their preferred 55 and over senior living community or continuous care retirement community (CCRC); it’s a major decision to make and a substantial investment.

The Senior Housing Expense

According to statistics, the majority of residents of CCRC retirement communities, also referred to as Life Plan Communities, are better off financially than the average population of seniors. However, for those people who are still in the senior living decision-making stage and considering a move to a retirement community, the question may not be, “Can I afford it?” Rather, they may need to ask, “To what extent can I afford it?”

In her article entitled, “More households entering retirement with debt,” Alicia Munnell, the director of the Center for Retirement Research at Boston College, analyzes the Federal Reserve’s 2013 Survey of Consumer Finances (the most-recent statistics available). These stats are broken into three major categories of debt: credit card debt, installment loans, and housing debt. Housing debt includes both mortgages and balances on home equity lines of credit (HELOCs) on a primary residence. Munnell found that in 2013, approximately one-third of senior households held housing-related debt, compared to only 21 percent in 2001. Additionally, the outstanding balance for those seniors with housing debt was substantial: $74,200.

Can I Afford It?

Most financial planners advise seniors to pay off their mortgage before they retire, however, these statistics show that this best-case financial scenario may not be in the cards for many retirees. Since home equity is a common source of the funds needed to enter a CCRC, many people who are considering a senior living community or a continuing care retirement community want a better understanding of the financial impacts of a move based on a range of possible scenarios. Some examples:

  • What if I wait five more years to move and build up more equity in my home (or finish paying off my mortgage)?
  • What if I live in the CCRC for twenty years and require five years of skilled nursing care?
  • What if I live only fifteen more years but require ten years of assisted living or skilled nursing care?
  • How much will be left over for my children in these various scenarios after paying an entry fee, monthly fees, and the cost of care?

For the seniors (or their adult children) who ask themselves these questions, it can be difficult to find concrete answers. If you try to do the calculations yourself, perhaps using an Excel spreadsheet, it can be almost impossible to correctly adjust for all of the different factors and scenarios including entry fees, refundable entry fees, fee adjustments that could take place within the community (which vary depending on the type of resident contract and get even more complicated for couples), the impact of long term care insurance, inflation, growth on investments, and more.

Getting the Answers

It is important for families to discuss finances, senior housing options, and end-of-life wishes before a major health event occurs. They need to understand all of the choices so that educated decisions can be made. Many seniors want to stay in their home as long as possible, while others may prefer the solace of a continuing care retirement community that is equipped to provide progressive levels of care if needed.

 

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