Editor's note: To help CPAs meet the needs of older clients, the PFP Section has chosen to focus on elder planning as a thought leadership topic. This is the fifth in a series of articles about planning for life transitions following retirement featuring prominent CPA personal financial planners that will appear throughout 2016. To read other articles in the series, and to access other elder planning resources, visit the PFP's elder planning and life transitions after retirement website.
As they approach retirement, your clients should give some thought to where they will live in old age. Skilled care facilities, popularly called nursing homes, are no longer the only option. Today, depending on their finances and the state of their health, senior citizens can choose from a variety of living arrangements, ranging from staying at home to moving to a community where they are guaranteed health care for life.
CPAs will want to familiarize themselves with the primary types of senior living arrangements so they are better prepared to advise their clients on the financial implications of where they might choose to live in old age. They can encourage clients to investigate senior living options in their communities and assist with an analysis of the potential costs and sources of funding so that clients can be prepared to afford their preferred option when the time comes.
"Financial planners can provide some constructive reality and help clients see what is realistically in their means" when it comes to living arrangements for the elderly, said Tom Trainor, managing director at Toronto's Hanover Private Client Corporation, a financial services firm.
Below, Trainor and fellow experts Brad Breeding, president and co-founder of MyLifeSite, a website that profiles continuing care retirement communities (CCRCs), and Scott Pelfrey, CPA/PFS, senior manager at REDW Stanley Financial Advisors LLC, evaluate the pros and cons of several of the major types of senior living options:
Aging in place
What it is: Living at home for as long as possible, sometimes with part-time assistance from a nurse, home health aide, or other paid caregiver.
- The comforts of home.
- A sense of independence.
- Can require a great deal of support from friends and family.
- Caregivers need to be carefully vetted for trustworthiness and capability.
Financial considerations: Current rates for in-home help start around $12 an hour and increase rapidly depending on the level of skill required. The home may also need to be renovated to meet a resident's changing needs for a more accessible bathroom, bedroom, etc.
Expert tips: "Aging in place can take a heavy toll emotionally, physically, and even financially," said Breeding. Residents need to consider how much help they'll need from friends and family to stay in place.
Clients also need to consider their level of comfort with strangers in the home, Pelfrey noted. "They need to consider how they'll monitor the provider and keep themselves protected financially and physically," he said. "They also need to secure adequate liability insurance, have a system of recordkeeping for tax purposes, and have someone they trust monitor their care."
What they are: Long-term facilities that provide partial care options such as meals, transportation, and assistance with bathing and dressing.
- Social living with other seniors.
- Community activities.
- Loss of some privacy.
- Downsizing of personal property.
- Less flexibility with meal times and transportation.
Financial considerations: "Most would argue that the biggest drawback is cost," Breeding said. According to John Hancock's Cost of Care Calculator, he said, the national average for a year's stay in assisted living is almost $45,000. (See resources below to calculate costs in your area.)
Expert tips: Some facilities may offer a trial term. Clients should try visiting unannounced and seek referrals from trusted sources.
Skilled care facilities
What they are: Facilities that are licensed to provide around-the-clock medical services alongside care services such as feeding, bathing, and dressing.
- 24-hour care with nurses and other medical professionals on-site.
- Care overseen by a licensed physician.
- May be overcrowded or understaffed, so clients must be very careful in selecting a facility.
- Clients may not know how long they'll be living there, which can affect their financial stability and decision to sell their home.
- In addition to the cost of services covered in the monthly fee, extra services may be needed as health needs change.
Notes on cost: The national average for one year of care in a semiprivate room at a skilled nursing facility is just over $80,000, Breeding said, while the average cost of a private room is around $91,000.
Expert tips: Clients should consider long-term-care insurance or a life insurance/annuity rider in advance of need. Medicaid and Medicare may cover part of the cost, but clients should also consider policy-paid arrangements or paying out of pocket, Pelfrey said.
Trainor advises clients to apply for a spot in a facility while they're still reasonably healthy, as many are reluctant to admit new residents with significant health issues.
"Once you are in, they work hard to keep you there," he observed. "But if you wait until you start having health problems, your options can narrow."
Continuing care retirement communities (CCRCs)
What they are: Single properties that offer several types of living arrangements, from independent living to assisted living to skilled nursing home care.
- Residents can stay in the same community even if their health declines and they need a higher level of care.
- Different types of contracts may be offered, including full life care, which pays for all assisted-living and skilled nursing costs.
- High entry and monthly fees.
- Can have long waiting lists.
Financial considerations: CCRCs are the most expensive option for long-term care but also provide the most elaborate services and amenities, including access to a full continuum of care. Entry fees start under $100,000 and can range to the hundreds of thousands of dollars, which clients often obtain by selling their home. Typically, clients pay monthly fees of $3,000 to $5,000 or more.
Expert tips: It's important for clients to understand their contract—whether it's all-inclusive life care, fee-for-service, or another type—and its termination provisions.
What it is: Attached homes or condos where seniors choose to live with other seniors. Residents live in their own homes, but, instead of owning their home, they buy shares in a corporation that provides them with rights to their property.
- Sense of community.
- Cost sharing.
- Residents check on each other.
- Financial resources among residents will differ.
- Residents must reach agreement on conditions such as quiet hours and visitors.
- No on-site medical care.
Financial considerations: Costs vary depending on location and size of unit.
Expert tips: "Some residents may not be accustomed to a congregational approach, and quarrels can evolve when residents are in charge of their own rule-making," Breeding said. Clients should seek information on what written rules or agreements the community adheres to.
Resources for CPAs and their clients
John Hancock Cost of Care Calculator: Calculates the average cost of different types of care for different states, cities, and length of care required.
Genworth Cost of Care Survey calculator: Calculates the average cost of different types of care for different states on an annual, monthly, or daily basis.
MyLifeSite DecisionGenie: Generates financial projections taking into account specific criteria related to senior housing, such as entry fees, refundable entry fees, monthly fees, cost of care, etc.
AICPA PFP Division members, inclusive of CPA/PFS credential holders, can access client-friendly resources on these topics in Forefield Advisor.