In a 2009 Cost of Care Survey released in April by Genworth Financial, Inc. of Richmond, Virginia, the national median monthly rate for an assisted living apartment was $2,825. This rate can fluctuate dramatically depending on whether the retirement or assisted living community is located in an urban or a suburban or rural area. Additionally, the cost for assisted living has been rising an average of 4.7% annually over the past five years. As these figures demonstrate, paying for your retirement will require some preparation and planning. In the first part of this article about paying for retirement, we’ll provide information about private payment sources, real estate options, and long-term care insurance.
Private Payment – For the most part, the assisted living industry is a private pay business. To pay for retirement in these communities, you would be using funds from your own resources including pensions, retirement accounts, savings accounts, annuities, or investment accounts. You might also use the proceeds from the sale of real estate or private property.
Real Estate Equity Options – The real estate market has been hit hardest by the downturn in the economy. If you were planning to use the monies from the sale of your house or other property to fund your retirement, you may be delaying the sale to await the inevitable upturn in the market. However, when you need the services provided in a retirement or assisted living community, the need is immediate, and you may not be able to wait for the sale of your property. In this case, you do have a few options that you can discuss with a real estate professional or a financial advisor. You may consider a home equity loan, reverse mortgage or a bridge loan. With a home equity loan, you can borrow against the equity you’ve accrued over the years. A reverse mortgage is available to homeowners 60 years or older. It allows you to convert some of the equity in your home into cash. A bridge loan can be obtained if you are awaiting the sale of your house, but need immediate funds for assisted living or retirement costs. A bridge loan is an interest only loan that can help pay these costs until your house sells. Any loan comes with both risks and benefits. It is extremely important that you speak with a professional that you trust before entering into any of these types of loans. You can also check with your state’s Commissioner of Revenue to find out if you might be eligible for any type of tax credit with respect to real estate or property.
Long-Term Care Insurance – According to the American Health Care Association and the National Center for Assisted Living, long-term care insurance can “protect personal assets and inheritance for the family and provide for financial security.” The insurance policy premiums are based on age, health, length of deductible period, amount paid, and duration of the benefits. The premiums can increase with additional options such as higher daily benefits, inflation protection, and non-forfeiture benefits. According to the Health Insurance Association of America, the annual low option premium for long term care insurance for a person aged 50 is about $850; at age 65, the policy would cost $1,800 and at age 79, it would rise to approximately $5,500. Of course, these costs vary by insurance providers. So, it is imperative to speak with a financial advisor or contact your state insurance commissioner’s office for a list of insurance companies who can sell long-term care insurance in your state. In Virginia, the commissioner’s office is located in Richmond. The phone number is (804) 371-9694. Also, if you live in Virginia, you may deduct long-term care health insurance premiums from your state taxes. This deduction can be taken provided that these premiums have not been deducted for Federal taxes. Please consult a tax advisor for full details.
In the next part of Paying For Your Retirement, we’ll discuss the government benefits that may be used toward the cost of assisted living. These benefits include: Veterans Administration Aid and Attendance, Medicare, and Medicaid.