It’s been a mantra in recent years: most Americans want to stay right where they are in retirement. Aging in place is the preference expressed by older Americans in most surveys - a view that springs, in part, from rebellion against the notion that retirement communities in the Sunbelt states or institutional settings like nursing homes are the right place for all older people.
Aging in place can be a good option - but it’s not always realistic. Issues to consider include the cost of upkeep and healthcare and proximity to family, recreation, leisure activities and transportation.
Housing expense is, of course, a key component of any retirement plan - and a big item on the client’s balance sheet.
“Advisors should regard the client’s home as a financial commodity,” says Stephen M. Golant, a gerontologist and professor at the University of Florida. “Is it, from a cost-benefit viewpoint, still a reasonable assumption that you should stay where you are?” Golant weighs these issues in Aging in the Right Place (Health Professions Press, February 2015) a new book that examines the relationship between location and aging successfully. Golant agrees that aging in place can be an appropriate strategy - but he’s a skeptic. His book already is making some waves among aging policymakers, and he raises some important test questions that advisers can put to work as they work through the issue with clients.
The conversation can be difficult, since planning for housing in retirement raises touchy emotional issues. But there’s some good news for advisors, Golant thinks: “People who work with planners already are predisposed to looking ahead. The hallmark of aging successfully is to make an adjustment in your life before a crisis occurs. A majority of Americans don’t do that.”
What exactly is aging in place? Definitions differ, but the Centers for Disease Control and Prevention defines it as “the ability to live in one’s own home and community safely, independently, and comfortably, regardless of age, income, or ability level.”
For advisors, that’s a good place to start a conversation. “It’s important to have a realistic sense of the true cost of aging in place, and where the shortfalls might be,” says Ramsey Alwin, vice president of economic security at the National Council on Aging.
Here’s a list of key considerations.
Housing expense. Try to get a good sense of the client’s actual cost of living in her current homes. “Not only the typical mortgage, tax, and insurance costs, but also whether repair bills are getting more frequent and expensive,” Golant says. “Will they need to add a room, an air conditioning system or flooring? A lift for the staircase?”
Remodeling to accommodate retirement at home can be expensive, too. A 2010 Metlife study on aging in place found that remaking entryways and adding ease-of-movement features can run anywhere from $4,500 to $30,000; more substantial remodeling such as adding no-step showers or kitchen accessibility could run anywhere from $8,000 to $75,000.
Finally, some older clients may be making inefficient use of space. “I’ve seen cases of older widows living in a 4,000 square foot house with tremendous upkeep costs, even though she may only be living in three or four rooms of the house. If you have an older client living alone, I’d ask her, ‘How much of the house do you actually live in on a regular basis?’”
Talk to clients about housing expense in terms of a financial benefit, not lost property, Golant advises. “If my client moved to a smaller dwelling, she could reinvest the equity from that house and actually earn money on it, instead of paying out money for upkeep.”
A new location can add some pop to home equity extraction if your client also moves to a less expensive real estate market - although that should be coupled with other key considerations, like proximity to relatives and friends and community amenities.
What to be Aware Of
Transportation. The typical baby boomer approaching retirement is living in a single occupancy suburban dwelling; about 60 percent of households over age 50 in the northeast, according to JCHS, and 50 percent in the western U.S. Suburbs are designed for the automobile, so when clients reach an age where they can no longer drive, inadequate transportation options increase isolation; research shows sharp declines in everything from trips to the doctor, shopping and visiting restaurants.
Long-term care expense. The cost of long-term care depends very much on location. For starters, proximity to a family member likely means that at least some care will be provided for free. But the cost of everything from a home health aid to assisted living varies tremendously by location. For example, the national median cost of a private nursing home last year was $87,600 - but it's $155,125 in Connecticut, $87,180 in Ohio and $57,487 in Oklahoma, according to an annual study by Genworth. Likewise, the median annual national cost for home healthcare aides last year was $45,188, but ranged as high as $58,916 in Minnesota to $34,320 in Louisiana.
Social isolation. This is a major risk factor for older adults, Golant notes, especially widowed or unmarried seniors. “People who stay put can become isolated when friends, family or neighbors move away or die.” Isolation and loneliness are risk factors for serious health and mental health problems, and can be a good reason to consider a move to be near family, or into a senior community.
Emotional considerations. The importance of an emotional comfort zone may trump everything else for some clients. Golant refers to this as a “residential mastery zone” - the place where someone feels capable, competent and in control. “It’s important to understand the positive response that people have to their notions of comfort, memory and sentimentality,” he says. “At the same time, a reality check on residential mastery is needed - would things be easier if you lived closer to the doctors you see, or your daughter? Are you able to just go outside and get your everyday goods, or get to your church?”
Financial advisors earn their fees by helping clients think through these kinds of questions. The best option may not be a client’s ideal choice, but you can help them be comfortable knowing it’s the right one.