Like Dorothy Gale of Kansas from the “Wizard of Oz,” there appears to be no place like home for millions of older Americans. About 90% of people, age 65 and over, would prefer to stay in their own homes as they age — and not go to a nursing home or assisted living facility.1
Unfortunately, this aspiration often bumps into two real-life challenges. One is the older adult’s likely need to renovate and retrofit key areas of the home so it will continue to accommodate their changing needs. The second has more to do with nature itself. About half of all Americans, 65 and older (47% for men, 58% for women), will require long-term care during their lifetimes.2
Nevertheless, these two challenges aren’t insurmountable. Indeed, with proper planning and execution, aging where you feel most secure and comfortable can be exactly the right place for your retirement.
Here’s how to make it happen!
Making Appropriate Home Modifications
The U.S. Centers for Disease Control and Prevention (CDC) defines aging in place as “the ability to live in one’s own home and community safely, independently, and comfortably, regardless of age, income, or ability level.”3
To meet this definition, you will likely need to modify your home as you grow older, which is also the time when more vision, dexterity, and mobility issues creep up.
Fortunately, not all the renovations you may need to make will break your budget. Installing a comfort-height toilet, adding bathroom grab bars, and making the surfaces of your showers and bath slip-resistant are relatively easy and inexpensive to implement. Also brightening key areas of the home, such as illuminating a dimly lit kitchen or garage, can help you sidestep hazardous slip-and-fall situations. According to the CDC, for people ages 65-84, falls are the second-leading cause of injury-related death; for those age 85 years or older, falls are the leading cause of injury-related death.4
To further improve in-home safety, convenience, and livability, more ambitious renovations such as eliminating stairs, installing non-slip flooring throughout the home, widening hallways (making them wheelchair-friendly), relocating an upstairs bedroom to the first floor are all possible, of course, but will likely require more expense. If you plan to live in your home for many more years, this time and effort should prove well worth the investment.
An array of new services and technologies, such as home food delivery and smart appliances, has also helped make independent living safer and more secure. Installing smart locks, for instance, puts an end to fumbling for keys in the dark. Adding a video doorbell with an integrated camera can alert you to who is showing up at your front door. You won’t automatically have to jump up each time UPS delivers another parcel on your doorstep.
Unquestionably, it’s become more possible and practical to continue aging at home, making it an exciting time for seniors to continue living life on their terms. But these improvements all come with a price. Fortunately, there are strategies for covering the cost, which will be addressed after taking up the second challenge, paying for in-home care services.
Paying for In-home Care
First, it’s easy to see why older Americans overwhelmingly prefer in-home care to institutional care. The home offers a sense of freedom and independence that even the best care facilities would find hard to match. In your own home, you will likely have greater control over your daily routine and activities. If you want a peanut butter and jelly sandwich in the middle of the night, you can make your way down the hall to the kitchen and make it yourself without asking the night supervisor for permission.
Besides receiving care in a familiar setting, in-home care is generally more affordable than institutional care. For 2020, Genworth listed the national monthly median cost at $7,756 for a semi-private room in a nursing home and $8,821 per month for a private room, roughly twice the cost of in-home care.5
Although generally less expensive, in-home care is still very much a real expense that must be covered by you or someone else. The difficulty is identifying the appropriate partner, like Medicare, Medicaid, the VA, and Home- and Community-Based Services, and learning the extent of the financial assistance available to you. The level of coverage for which you could be eligible may be based on a multitude of factors and formulas, including your income, your health condition, and duration of care needed.
It can be a bewildering maze of agencies and organizations to wade through. For example, Medicare does not pay for non-medical, home care aides, and only selectively covers home health care. Medicare Advantage, on the other hand, may cover non-medical expenses and home care aides depending on one’s plan.6
Private insurance can help with the tab, but only about a quarter of Americans owns a private long-term care policy.7 Many simply find the annual cost too prohibitive. For instance, a 55-year-old couple can expect to pay about $2,500 per year in annual premiums for long-term care insurance. A 60-year-old couple would pay $3,500, but by 65, the same coverage would cost $7,000, and by 70 it would likely cost $14,000 or more per year.8
Less competition also equals higher prices for healthcare consumers. According to a 2016 study published by the National Association of Insurance Commissioners, there were more than 100 insurers selling long-term care policies in the 1990s compared to less than a dozen today.9
Another reason cited by the study for Americans not purchasing long-term-care insurance ahead was, “I don’t want to pay for something I may never need.” And indeed, these survey respondents have a solid case. According to Morningstar, 63% of individuals age 65 today will have no out-of-pocket, long-term care costs during their lifetimes.10
Finding the Perfect Middle Ground with a Reverse Mortgage Loan
Nevertheless, no one yet has been able to predict the future with 100% accuracy. Although the current life expectancy for Americans in 2021 is 79 years, that’s simply the median.11 While not everyone is fortunate enough to reach 79, many Americans outlive that number by 10 years and some outlive it by more than 20 years. How does one plan for so many possibilities?
One way is with a reverse mortgage line of credit! First, let’s explain what a reverse mortgage is before describing how a reverse mortgage line of credit could help pay for both your home modifications and in-home care, if needed.
A reverse mortgage loan is simply a flexible financing tool that allows Americans, 62 and older, to convert some of their home equity into tax-free cash that can be used for virtually any purpose. Unlike other loans, such as a traditional mortgage or home equity loan, you don’t have to repay a reverse mortgage until you sell your home, permanently leave it, pass away, or otherwise don’t comply with your loan terms. At such time, you or your heirs will have to pay back the loan principal plus interest and insurance fees accrued over the life of the loan. To find out if a reverse mortgage loan is right for you, click here.
With your reverse mortgage intact, you will have no monthly mortgage payments because the first thing a reverse mortgage does is pay off your old mortgage, if one exists. Although a reverse mortgage eliminates monthly mortgage payments, it doesn’t relieve you of the responsibility of maintaining your home and regularly meeting your property tax and homeowners insurance obligations. Failure to meet these conditions could lead to foreclosure.
The remainder of your tax-free proceeds are paid to you in a payment plan of your choice, which includes a reverse mortgage line of credit. The reverse mortgage line of credit is the most popular payout option because it is also the most flexible. You are charged interest only on the portion you use. Meanwhile, the unused portion continues to grow at the same interest rate you’re paying on the amount you’ve borrowed, making it an outstanding reserve fund for fixing up your home, paying for in-home care, or addressing other financial concerns that invariably arise in retirement. Also, your line cannot be frozen, reduced, or canceled if funds are available, as long as you continue to meet the terms and conditions of the loan.
Indeed, a reverse mortgage line of credit is so versatile that many older Americans prefer it to a traditional home equity line of credit (HELOC) once they learn its features:
You may never need to use your reverse mortgage line of credit, but it’s there for you just in case. At the same time, if you leave it untouched for 10 or 20 years, your available credit (principal limit) will likely be much larger than the amount for which you initially qualified, giving you even more financial firepower for home modifications, in-home care, and much, much more.
Who is eligible for a reverse mortgage?
Reverse mortgages are designed to serve older Americans. Hence, you must be 62 or older to apply. Here are some other requirements for taking out a reverse mortgage:
- You must own your home and live in it as your principal residence, meaning it must be where you spend at least 180 days out of the year.
- The home must be a single-family home, a multi-unit property with up to four units, a manufactured home built after June 1976, a townhouse, or HUD-approved condominium.
- You must have enough home equity (you can have an existing mortgage) to borrow against.
- You may not be delinquent on any federal debt, such as federal income taxes or federal student loans. You may, however, use funds from the reverse mortgage to pay off this debt.
- You must agree to keep your home in good condition and remain current on property taxes, homeowners insurance, and other mandatory legal obligations, such as homeowners association dues.
- You must receive counseling from a HUD-approved reverse mortgage counseling agency to discuss your eligibility, the financial implications of the loan, and other potential home equity alternatives that could better fit your financial needs. Your lender will not submit your reverse mortgage for approval without a certificate showing you have successfully completed counseling.
Over the years, both you and the home that owns your heart will likely require a “maintenance” plan for optimal operation and longevity. Currently, you may not be able to foresee everything in the plan, but just having it in place may give you peace of mind that money just can’t buy. To find out if a reverse mortgage loan is right for you, click here.
We hope this article has given you some help with things to think about. Of course, every situation is different. This information is intended to be general and educational in nature, not to construe as financial advice.