When you think about
where (and how) you’ll live in retirement, you basically have 10 possibilities.
Each one comes with distinct pros and cons to consider.
by: Jamie P. Hopkins, Esq., CFP, RICP July 2, 2019
One of the most important aspects of
retirement planning is making housing plans. The reality is that you need a
place to live in retirement and there are a lot of different options.
Furthermore, even if you decide to just keep the status quo and age in place,
there are a lot of factors to consider.
The home is often a retiree’s largest asset,
with the median wealth in homes for a 65-year-old couple at $192,552, according
to the U.S. Census data. This represents about two-thirds of the median
retiree’s assets. Furthermore, the home comes with a cost, which is often the
largest expense for retirees at nearly $20,000 a year. So let’s look at
10 different retirement housing options, ranging from aging in place
all the way through nursing home care at the end of life.
Written by Jamie Hopkins, Esq., LLM, MBA, CFP®, RICP®. He serves
as Director of Retirement Research at Carson Wealth and is a finance professor
of practice at Creighton University's Heider College of Business. His most
recent book, "Rewirement: Rewiring The
Way You Think About Retirement," details the behavioral finance issues that hold people
back from a more financially secure retirement.
This article was written by and presents the
views of our contributing adviser, not the Kiplinger editorial staff. You can
check adviser records with the SEC or with FINRA.
1 of 10 Aging in Place
·
What
is it: Roughly 83% of retiree
homeowners want to stay in their current home for as long as possible.
·
Pro: The homeowner gets to keep consistency
in their life. They know their house, understand the costs associated with it,
have an emotional attachment to it, and know the surrounding area. In many
cases this can be the most enjoyable and stress-free way to live in retirement.
·
Con: Often retirees have outgrown their current
homes. Perhaps they raised a few kids and have a lot of extra maintenance,
rooms and costs associated with keeping up the house. While it might work early
in retirement, it could become a burden as they age. The current home also
might not be friendly for aging in place. The home could have too many stairs,
not a lot of senior amenities, and be far away from senior services like health
care.
2 of 10 Home Sharing
·
What
is it: For some homeowners,
the desire to age in place is there, but the finances just don’t make sense,
especially if the person is single. So one option is to take on a roommate.
Home sharing is mostly engaged in by women in retirement, with over 4 million senior women sharing
a home with at least two other women. There are home-sharing services that help
pair up homeowners with potential roommates, both from a financial and
compatibility standpoint.
·
Pro: Home sharing can be a great way for a
homeowner to age in place, add companionship to their life, and improve their
finances. The homeowner is able to charge rent and likely split utilities,
which can add much-needed cash flow. Additionally, it allows the homeowner to
have someone else live with them who is in a similar stage of life.
·
Con: Not everyone wants to share their home with a
stranger or another person. Furthermore, the decision to bring someone into
your home carries a bunch of risks. For one, you might not get along.
Additionally, there can be a lot of headaches from renting a room if the renter
is unable to meet their payments. It can be hard to evict a person, especially
a senior.
3 of 10 Relocating/Downsizing
·
What
is it: When you are working,
living close to work is important for many people. However, once you retire,
that need is gone. All of a sudden, location desires change. Additionally, the
house you were living in might no longer fit your needs, so relocating to a
better fit can make sense.
·
Pro: Relocating can help free up home equity and
reduce expenses if the homeowner downsizes. It is also possible to move to an
area with a lower cost of living or to a state that has lower taxes.
Additionally, a benefit of relocating in retirement can be to move closer to
family or to improve one’s quality of life by moving to warmer weather or
closer to recreational activities.
·
Con: Relocating means getting used to a new area
and home. Moving always has costs associated with it also, whether it is hiring
movers, closing costs or just travel costs. Lastly, if the decision to relocate
eventually does not work, it is very hard to undo.
4 of 10 Renting
·
What
is it: If you are already
renting this would be the status quo. However, for homeowners, one option is to
sell the home and rent. In some cases you can engage in a sale-leaseback
agreement and sell your current home and continue to rent it back. In other
cases, you can sell and move to a new rental location.
·
Pro: By selling and renting, you can free up home
equity for other needs and possibly reduce your expenses. Renting also provides
more flexibility in that you can move more freely than if you owned.
Additionally, renting can take some of the home upkeep and maintenance off the
table. This can be very valuable to seniors as they age. While it might have
been enjoyable to mow the lawn and take care of the property at an earlier age,
as one ages it can become difficult and expensive to hire out, so renting can
be a way of controlling the costs of living.
·
Con: One of the biggest downsides of renting is
just that most homeowners don’t want to do it. A survey of retirement age
homeowners found that only 5% wanted to sell their home and rent. For many
Americans owning their home is part of the American dream, so renting just
doesn’t fit their vision of a successful retirement, even if it is the best
financial outcome for them.
5 of 10 Village Concept
·
What
is it: The Beacon Community
near Boston is often credited as being the first official “village model,”
but communities taking care of seniors together have been around forever. The
village model is about allowing seniors to age in place in their homes but with
the support they need. In many cases, the village model is set up similar to a
homeowners association where dues are paid into the “village” or “community,”
which in turns provides services like transportation, events and some basic
care.
·
Pro: The village model can help reduce costs as
seniors share services and costs with others needing similar assistance. By
allowing seniors to age in place for longer, they can avoid having to move into
more expensive senior housing like assisted living facilities before they need
to.
·
Con: While there are a few hundred village models
in the country, that is not a lot of options. For many seniors there is no
village model option in their area. Additionally, services are limited, so the
retiree might still need to move as their needs for services grows.
Furthermore, there is a cost associated with the village model, so that could
impact cash flow.
6 of 10 Age-Restricted (Active Adult) Communities
·
What
is it: Generally in the
United States you cannot discriminate based on age, gender or race when it
comes to housing options because of the Fair Housing Act of 1968. However, The
Housing For Older Persons Act of 1995 allows for communities to restrict
housing options to older individuals as long as certain parameters are
followed. Essentially, there are two forms of age-restricted housing options.
The first requires that at least 80% of the occupied units have at least one
person who is 55 or older living in the home. The other type is a bit more
restrictive as it requires all residents to be at least age 62, including both
spouses.
·
Pro: One of the biggest benefits is companionship.
Seniors decide to live near and around those going through a similar part of
their life and retirement. The communities often provide a variety of services,
clubhouses and recreational activities.
Con: There
can be additional costs associated with living in such communities, so it is
not always the cheapest housing option. Furthermore, with a 62-and-over
community, adult children cannot move in if they don’t meet the age
requirement. Additionally, for spouses with large age gaps, they can be
prohibitive also.
7 of 10 Continuing Care Retirement Communities
·
What
is it: Continuing Care Retirement
Communities (CCRCs) offer a continuum of care throughout
retirement, often starting with independent living. Most of these communities
require the senior to move in when they are in good health and can live
independently. Over time, the senior can stay in the same community but receive
different levels of care and senior housing, ranging from assisted living to long-term
care to end-of-life care.
·
Pro: CCRCs allow a senior to age in place in the
same community but receive services and long-term care as their needs change.
This is also a way to control and, in some cases, prepay your long-term care
costs. The communities also often provide food, transportation and recreational
activities.
·
Con: The biggest concern with CCRCs is whether the
entity will be able to fulfill its promises over time. CCRCs are typically
for-profit businesses that can run out of money and go out of business.
Additionally, many require down payments in the hundreds of thousands of
dollars. So, if the entity goes bankrupt, seniors could lose these down
payments.
8 of 10 Assisted Living
·
What
is it: Assisted living offers
a combination of housing and care services. Typically when someone moves into
an assisted living facility they need help with some activities of daily living
and are in the early stages of needing long-term care services. However, the
person can still live mostly independently.
·
Pro: For many, assisted living facilities offer the
care required to maintain a standard of living desired by the senior. They
could need some help with bathing, dressing, mobility or cooking.
·
Con: Cost. According to 2018 numbers in Genworth’s
Cost of Care Study, the average assisted living cost is roughly $48,000 a year.
Furthermore, Genworth predicts that this cost will balloon to roughly $86,000 a
year by 2038. Additionally, it can be hard to choose the right facility. Plan
ahead to determine how you will pay for assisted living and the type of
facility and care that you want.
9 of 10 Nursing Home
·
What
is it: Nursing homes provide
housing and full-time care for individuals needing significant levels of
long-term assistance. Nursing home care is less about making a housing decision
and more about receiving the level of care you need.
·
Pro: Care can be significant and help the person
live a better lifestyle than they would if they tried to manage alone at home.
Additionally, nursing homes can provide skilled care services that might be
difficult for family members to provide or expensive to hire out for at home.
·
Con: Nursing home quality ranges significantly, and
so does cost. Furthermore, most people do not look forward to or choose to move
into a nursing home, but instead, it is typically driven out of necessity.
According to Genworth, a private room in 2018 cost over $100,000 a year on
average. Plans for how to fund your care should start well before retirement.
10 of 10 Charity
·
What
is it: Charity housing can
mean a few different things. First, there are charities and religious
organizations that provide free or reduced-cost housing options for low-income
seniors. Another form of charitable housing can come from family members. Many
will take in relatives to help them out.
·
Pro: Charity is going to be in many cases the
cheapest form of retiree housing. When it comes to family members taking in a
senior, it can also be a great way to spend time with family.
·
Con: Most people do not want to rely on family
members or charities for their housing or other needs. The desire for most
people is to live independently. However, living with family and using
charitable housing is a viable option for millions.
This
article was written by and presents the views of our contributing adviser, not
the Kiplinger editorial staff. You can check adviser records with the SEC or
with FINRA.
Jamie P. Hopkins, Esq., CFP, RICP Director of Retirement Research, Carson Wealth
is a well-recognized
writer, speaker and thought leader in the area of retirement income planning.
He serves as Director of Retirement Research at Carson Group and is a finance
professor of practice at Creighton
University's Heider College of Business. His most recent book, "Rewirement:
Rewiring The Way You Think About Retirement," details the
behavioral finance issues that hold people back from a more financially secure
retirement.
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