Aging in place and affordability
The vast majority of people, nearly 90%, between 50 and 80 years old want to stay in their own home as they age. However, as we think about “aging in place,” it’s essential to consider the likelihood that we’ll need some level of assistance to do so. In fact, disabilities, particularly those related to mobility, affect 2 in 5 adults over the age of 65, according to the Center for Disease Control and Prevention (CDC).
There are all sorts of very good reasons folks want to stay put, if they can.
- People have developed significant local networks of friends, family, and other support.
- They live in a space they’ve furnished and decorated with love over time, where they feel comfortable and safe.
- They know how to get around their neighborhood, where they have access to socialization, shopping, exercise, medical care, and entertainment.
- Preserving as much independence as possible is important for our mental health.
As you think about staying in your own home as you age, it’s important to consider not just whether you’d be happier, but also whether you can stay healthy at home, if doing so is cost effective, and if it is, how you’ll afford it.
Aging in place means making your home not only a comfortable place to be as you get older and, potentially, need more help, but also a safer place. Although adding safety measures, like shower bars or motion-sensor lights, can help avoid a fall, eventually many of us are going to need more help than grab bars and extra lighting can provide. Nonetheless, it’s still possible to age in place with in-home care.
When we think about in-home care, we may picture a nurse who comes to our home, but this is very pricey if it’s not covered by insurance. In this article, we focus on non-medical in-home care that supports people with activities of daily living (ADL), like moving around, bathing, dressing, and so on, as well as independent activities of daily living (IADL), a category that includes more complex activities that may not need to be done everyday. Examples include getting groceries, cooking, managing finances, following a diet or medication regimen, household chores, and caring for a pet.
In-home care can be life changing for many, but unfortunately, isn’t typically fully covered by Medicare or even private insurance. Those who need the care are often on a fixed income, which makes it challenging to afford. If there aren’t other ways for someone to get funds for their in-home care, like borrowing from a family member, other loan options related to home ownership can be considered.
As you pay off the mortgage on your home, you increase your equity in it, that is, how much of it you own. The more of your home you own, the more equity you have, and the more money you can access. There are several ways that older adults can access that equity in order to stay in their own home, either by borrowing against it or selling some or all of the property—without having to sell your home and move to a nursing home or elsewhere.
First, we’ll look at the costs of aging in place, and then at some of the most common methods of financing them.
What is the average cost to age in place?
How much it costs to age in place depends a great deal on how much help you need as you age. To further complicate matters, how much help you need is likely to change over time. You may find you don’t need much help in your 60s—perhaps you have some help cleaning or with landscaping, if you have a garden. In your 70s and 80s, even without a chronic disease or disability, you may find yourself needing more assistance with shopping, managing your finances, or transportation.
When we talk about aging in place, we may first think of modifications to a home that make it safer for those with limited mobility or strength, or who have trouble maintaining balance. These kinds of modifications can include everything from switching from door knobs to lever door handles and adding seating and grab bars to a shower stall to making sure there’s a no-stair entrance to the home. Switching from knobs to levers won’t break the bank, but updating a bathroom can cost thousands of dollars and mean the difference between staying at home or having to move somewhere with those modifications already in place.
Cost of Living
The national average for how much an older couple in good health still paying off a mortgage needs per month is $4,060, according to the Elder Index, developed by the Gerontology Institute at the University of Massachusetts Boston. A single person in poor health with a mortgage is looking at a national average of $3,231 per month. These numbers cover housing, healthcare, food, transportation, and household expenses. And, of course, they will vary dramatically depending on geography and the particulars of one’s health.
The average Social Security benefit covers about 80% of those expenses enumerated in the Elder Index for a couple. Although Social Security was never meant to be the only source of income for people when they retire, nearly a quarter of American adults 65 and older rely largely or entirely on Social Security for 90% or more of their income, according to a study in the Center for Social and Demographic Research on Aging Publications. For medium earners, Social Security is meant to replace about 40% of pre-retirement income. However, a couple relying thus on Social Security is, on average, already over $800 short on a monthly basis.
Cost of Care
In-home help can be a significant added expense. According to Genworth’s Cost of Care Survey, in 2021, the national average for homemaker services, that is, assistance with cooking, cleaning, and running errands, was $26 per hour, while non-medical home health aide services, such as assistance with bathing, ran $27 per hour. A mere five hours of help a week will run you an average of $520 - $540 a month. If you need 3 hours of help every day, that’s $2,184 - $2,268 a month. Overnight care is about 56 hours a week, which would be $5,824 - $6,048 a month.
How can I afford to stay in my home?
If you’re on a fixed income but own your own home, there are several ways you can access the equity in your home to afford staying there as you age. Here we present the most well known option, a Reverse Mortgage, and two common alternatives.
You’ve probably heard about reverse mortgages, and this is one way of accessing the equity in your home. Reverse mortgages can be a good solution for people in certain circumstances—you can read more about how reverse mortgages work here—but they are often not the first option to consider since they can be pricier than something like a personal loan.
That being said, if other options aren’t available, a Reverse mortgage can help you maintain your lifestyle and avoid moving somewhere you cannot thrive. We all deserve to make our own choices in how we age. or find as much joy.
Here, we’ll look at two other options for financing the ability to stay in your home using your home’s equity.
Home equity investment
A home equity investment, also known as a home equity agreement or equity sharing agreement, provides money upfront in a lump sum in exchange for a share in the ownership of the home. (This is not the same as a home equity line of credit (HELOC) or a home equity loan.) With a home equity investment, you are, in essence, selling part ownership of your home to an investor (usually an investment company), with the option to buy it back at the end of the agreement term by paying the company the current market value of their share in the home.
To qualify for home equity investment, investment companies generally require that you have at least 25% equity in your home (at current market value), and that you continue paying property taxes and maintaining the condition of the home, covering the cost of any repairs. The investment company will own a share of your home, but they will not have occupancy or leasing rights.
There are no monthly payments, and the company does not charge interest. Rather, the investor shares in the increased (or decreased) value of your home when it is sold, refinanced, or when you or your heirs buy out the investor’s share at the end of the investment term. Often there is little or no penalty for prepaying to buy back the equity before the end of the agreement, which can be anywhere from 10 to 30 years.
However, home equity investment only offers access to a small portion of your home’s equity, usually 20 - 25% of its total market value. While there is no debt obligation for heirs, if you are hoping to leave the home to someone, you or they will have to pay back the company’s share in the property when the agreement term ends. If the home has appreciated in value, you or your heirs will owe what the investment company’s share is worth—likely significantly more than the money you got in exchange at the beginning of the agreement.
For example, say your home is worth $300,000 and an investment company pays you $39,000 for a 39% share in the home’s equity. In 10 years your home sells for $400,000. In order to reclaim full ownership of the home, you or your heirs would owe the investment company $109,000—the original $60,000, plus $49,000 in appreciation.
Home equity investment allows you to maintain ownership of your home while continuing to build some wealth through any increase in the home’s market value.
Another option that provides cash while allowing you to stay in your home is to sell your home and lease it back from the company that bought it. You receive the value of your home in cash upfront and the buyer (the sale-leaseback provider) becomes the new owner of the home. You continue to live in the home and pay rent monthly. This means you’re no longer responsible for the cost of repairs, ongoing maintenance, property taxes or other homeownership costs.
Sale-leaseback is likely to get you the most money up front from among all the stay-in-home options, including reverse mortgages, home equity loans, and home equity agreements. The sale-leaseback arrangement doesn’t add to your debt. You will have a monthly rent payment, but your mortgage is paid back in full with the proceeds from the sale. It does mean, however, that you cannot leave the home to heirs, as you are no longer the owner. Neither can you control what renovations can be made to the home, for the same reason.
The monthly rent is not fixed, but agreements usually indicate what the rent will be for the duration of lease. Once the original lease period is up, the home can be sold. Spouses should be listed on the lease as well, to make sure they can stay for the full length of the lease, even if one spouse dies or moves into an assisted living facility.
At the end of the day, the best option will always depend on a combination of what kind of care you need, for how long, your mortgage, and your lifestyle wishes to age in place. If you or a loved one needs additional funds to stay in their home, let us help you better understand your options. A Wellahead concierge can talk you through the options so you can make the decision that’s best for your unique circumstances. There’s no fee for the service, and there’s no obligation. We’re here to help.