Your Finances & Navigating Your Journey to New Beginnings: A Glimpse at the Financial Side of Downsizing to a Senior Living Community
This month is Financial Wellness Month. With that in mind, I wanted to talk about some possible financial considerations when downsizing to a senior living community.
Transitioning into a senior living community is a significant life decision. It brings a simplified lifestyle, social engagement, life-enhancement programs, and a higher level of healthcare support, particularly if you move into a community that can support a continuum of care.
Downsizing into a Senior Living Community involves more than just managing the move; it requires a comprehensive financial strategy.
We highly recommend that you consult with your financial planner to map out a short- and long-term strategy that accounts for your healthcare requirements over time and your lifestyle.
Here are some of the financial considerations involved in downsizing and moving into a senior living community.
1. Real Estate Values and Strategic Liquidation
For many, the family home is the most substantial asset in their portfolio. Leveraging this asset effectively is often the primary funding source for the senior living community.
Market Reality: Understanding current real estate values is the first step. It is essential to obtain a professional valuation of your home to determine its "net" worth after commissions, closing costs, and preparation expenses. Be sure to consult a real estate professional to ascertain these figures.
Asset Liquidation: Beyond the home, many older adults find they have surplus assets—such as secondary properties or high-value personal items—that no longer fit into their present and future lifestyle. Liquidating these assets can help provide a significant boost to their initial liquidity. Be sure to consult with a financial planner and asset management professional as you make these decisions.
2. Understanding Senior Living Community Costs
Senior Living Community pricing models vary significantly depending on the type of community. It is important to distinguish between the various layers of cost:
Entrance Fees: Some communities require an upfront buy-in or entrance fee. This capital investment often secures a lower monthly rate or guaranteed access to future healthcare.
Monthly Service Fees: This is the predictable monthly cost covering housing, utilities, dining, maintenance, and amenities. You can expect these to increase on an annual basis.
Level of Care Adjustments: Costs typically increase as you move from Independent Living to Assisted Living or Memory Care. In addition to monthly rent, there will be additional costs that support the resident’s Activities of Daily Living (ADLs) based on the level of support needed, from basic, such as bathing and dressing, to more advanced, such as medical management, toileting, transferring, and supervision while eating.
Understanding these "tiers" of pricing early on prevents budgeting surprises should your healthcare needs change. There may come a time when a senior living community can no longer provide the required healthcare needed, and a move to a skilled nursing home becomes necessary.
Ancillary Expenses: Be sure to budget for costs not included in the monthly fee, such as specialized therapy, premium transportation, personal outings, and even haircuts at the hair salon or manicures and pedicures at the nail salon.
Depending on the staff-to-resident ratio and the level of care your loved one needs, you might also have to budget for home care or companion care several days a week.
I recommend talking with a Senior Living Advisor to better understand these costs and the types of communities you will be best suited for.
3. Accounting for Inflation and Depreciation
A common mistake in retirement planning is viewing today’s costs as static. Financial planning for the long term must account for two economic realities:
Inflation: The cost of labor, food, and healthcare naturally rises over time. A sustainable plan should assume a 3% to 4% annual increase in living expenses to ensure your capital lasts as long as you do.
Depreciation of Personal Assets: While real estate often appreciates, personal property (like vehicles or high-end furniture) depreciates. Setting realistic expectations for the resale value of these items is vital for an accurate budget.
4. Other Financial Considerations
Long-Term Care Insurance: Review your policy to see how it integrates with your chosen community. Some policies have specific triggers for when they begin paying for Assisted Living or in-home care support. Please also keep in mind that senior living communities are all private pay and not covered by Medicare/Medicaid.
Estate and Legacy Planning: Downsizing is an ideal time to update your will, trusts, and power of attorney. It ensures that your remaining assets are managed according to your wishes. Be sure to consult with an attorney.
Tax Deductions: In some cases, a portion of your senior living entrance or monthly fees may be tax-deductible as a medical expense. Be sure to consult with a tax pro.
Moving Forward with Confidence
The financial aspects of downsizing can feel overwhelming, but they are manageable with the help of professionals — a senior living advisor, a financial planner, a tax pro, an elder law attorney, a real estate pro, and even a geriatric care manager, as part of your village of experts that can help you navigate future possibilities.
WayMaker Downsizing & Move Management
Guiding Your Journey. Lifting the Burden.
Honoring Your Life Story.
Lighting Your Way to New Beginnings.
Your Journey is our Mission.
(770) 994-6622