Lauren Locker's widowed client initially vowed she would never leave her home of 30 years. Eight years later, at age 77, she said she was ready to move to a continuing-care community that would provide her with the health care services she would increasingly need as she got older. She moved in last year.
Until the client decided to move, Ms. Locker had reminded her every time they met that she needed a plan for where she would live out her later years. She encouraged the woman to visit different continuing-care communities and later helped her sell her beloved home. The client is using her Social Security benefits, a small pension and dividends to cover the monthly payments.
“As a financial planner, you have to be persistent with clients on this,” said Ms. Locker, founder of Locker Financial Services. “Some advisers don't keep bringing it up because they don't want to make the client angry. That's a mistake.”
Figuring out where an individual or couple will live is one of the biggest — and sometimes the toughest — pieces of the retirement puzzle that financial advisers can help clients put in place. It can be an emotional decision that plays out over years, and can be especially difficult if a couple has different health considerations or even different ideas about where they want to live. The discussions may need to include the clients' children or other family members, or even their physicians.
Funding their preferred choice for housing can be dicey, too. It often involves selling the family home or turning it into a source of income, by taking out a reverse mortgage or home equity loan.
Continuing-care retirement communities are often the most expensive option, requiring an initial payment of $100,000 to $1 million, plus monthly fees of several thousand dollars, AARP estimates.
Staying at home, even if the mortgage is paid off, has its own costs and considerations. Homes may require expensive retrofits, and their occupants may need health aide services, which cost an average $45,760 a year, and possibly homemaker services such as shopping, cooking and transportation, which adds another $44,616 a year, according to the Genworth 2015 Cost of Care Survey. Some of these costs could be covered by long-term-care insurance if clients have purchased policies.
Even with plenty of funds, aging at home can fail.
In one case, a couple who worked with Locker Financial Services and were worth more than $5 million, sold their home and bought a co-op after they learned they both had Parkinson's disease. They hired three shifts of health care professionals to provide 24-hour care, and a chef to prepare meals, but without someone to manage all these people providing the services, they had to move to a facility.
FIGHTING TO STAY
The reality is, though, that many people fight to stay in their home during retirement and beyond.
“It's very difficult to get our parents to move into these [assisted-care] facilities because they are giving up control,” said Karen DeRose, president and managing partner of DeRose Financial Planning Group. “They feel these places are for old people, and that they are not old.”
About 78% of adults over age 45 said they “strongly” would prefer to stay at home as long as possible, an AARP survey last year found. In reality, there isn't room for very many people in continuing-care communities.
There are only about 2,000 facilities with an average housing capacity of about 300, according to LeadingAge, an advocacy group for the elderly. That's enough for 600,000 people. Meanwhile, more than 44 million people are 65 and older today and 98 million will reach that age by 2060, the Administration on Aging projects.
With the majority of aging clients seeking to remain in their homes, reverse mortgages are increasingly being seen as a way to turn these housing assets into income.
Reverse mortgages allow those who are 62 and older to borrow against the equity in their home without requiring repayment until the borrowers die or the home is sold.
Historically, reverse mortgages were used only as a last resort because of high fees, the fact that one could still lose their home if they couldn't pay taxes and insurance, and because accruing interest ultimately can make what's owed exceed the value of the home.
Over the past three years, though, there have been some reforms by the Department of Housing and Urban Development and the Federal Housing Administration to improve the safety of these loans, such as requiring a financial assessment to make sure borrowers can afford to maintain the home.
“Reverse mortgages are inherently interesting because they give you access to cash, and they are extremely flexible about how the cash can be used in a way that will serve you well over the rest of your life,” said Tom Davison, special projects coordinator for Summit Financial Strategies.
Cash from a reverse mortgage can come as a lump sum, a monthly payment or as a line of credit, or homeowners can choose to receive portions of their cash through all three means, Mr. Davison said.
Monthly income from a reverse mortgage during the early years of retirement can dramatically cut down withdrawals from investment portfolios or allow individuals to build up higher future Social Security payments by delaying claiming until age 70.
Mr. Davison believes reverse mortgages should be used more as a mainstream product for retirement planning.
The Consumer Financial Protection Bureau isn't sure, saying in June that advertising by some firms is still misleading consumers about the costs, terms and features of reverse mortgages.
Ms. DeRose said they remain her “last resort” with clients because of the fees and fear that repayment could be triggered if the individual or couple isn't living in the house for a year.
She only suggests a reverse mortgage if a couple wants to stay in their home, doesn't have enough home equity built up and has no other viable income sources.
On the other hand, Ms. DeRose is a big proponent of tapping home equity. She encourages all her retired clients to have home equity lines of credit that can be used in an emergency. She also recommends they take out a line of credit for as much as they can, even if they don't intend to draw on it in the foreseeable future, if ever.
Joel Gemmell, an adviser with McLean Asset Management Corp., said Americans often can realize a financial gain and reduce their housing costs in retirement by downsizing or moving to a cheaper region of the country.
Smaller homes typically generate lower utility, property tax and maintenance bills, but he warns clients to make sure they don't move to a place so small that they won't have enough storage or living space to be happy.
“It always seems like you're going to get rid of a lot more stuff than you actually do,” Mr. Gemmell said.
One couple he works with is considering a move from Washington, D.C., to Washington state when they retire in three years. It would be a less expensive lifestyle, but they don't know many people in the area.
“When you move, you have to build up a whole new social network, which is harder for some than others,” Mr. Gemmell said. “That's a really important thing to remember.”
When retirees are moving to a smaller house or a new area it may even make sense to rent, at least temporarily while they evaluate their new lifestyle choice.
As the population ages, new housing solutions are cropping up. The emerging village movement, for example, brings together older residents of a city or suburb to create a nonprofit homeowners' group that locates health care services, shopping and entertainment resources — often at a discount — for group members. There are 170 of these operating in the U.S. and 160 more in development, according to the Village to Village Network.
Naturally Occurring Retirement Communities are another retirement housing model that's developing for those who are aging in place. With these, which started in New York, the government brings in services and social activities to large populations of older individuals who live close to one another.
“It's important to find a community of some sort that gives you the kind of support that we used to get from our families,” said Holly Deni, director of ElderLife, a division of Locker Financial Services.