transcript

Speaker 1:
[00:00] For most retirement savers, one of the biggest decisions you'll make in your 70s and 80s is not about your portfolio. It's not about Social Security timing, and it's not about Roth conversions. It's about where you're going to live. But that decision is often framed and approached the wrong way, because it's not just about where to live, it's also about how care will be delivered, coordinated and paid for if your health changes later on. And that's exactly what today's episode is about, the housing and care decision later in life, a topic most retirement savers have not fully thought through, and one that most financial plans often ignore. Specifically, I'm walking you through the four main paths people take, the risks each one shifts or solves, and what you need to know about continuing care retirement communities, including a little-known tax planning opportunity. I'll also explain why the best time to be thinking about all of this is usually when you feel far too young to be thinking about it. Welcome to another episode of the Stay Wealthy Retirement Show. I'm your host, Taylor Schulte, and every week, I tackle the most important financial topics to help you stay wealthy in retirement. And now on to the episode. When most people think about housing and retirement, they approach it the same way they did during their working years. Where do I want to live? What kind of home do I want? What neighborhood? What square footage? Those are lifestyle questions, but in your 70s, 80s, and 90s, the housing decision stops being just about lifestyle and it starts being more about care. Everyone has heard this stat before. Roughly 70% of adults over age 65 will need some form of long-term care during their lifetime. What's less talked about is just how big this demographic shift really is. This country is getting older in a more sustained, meaningful way. According to the Census Bureau, we now have more than 61 million adults age 65 and older living in the US. And by 2050, that number is expected to reach 82 million. In other words, more people than ever are going to face this decision, and they'll be living with it longer than ever before. Most financial plans don't account for it, and most retirement savers don't want to address it. So when you think about where you'll live later in life, you're really answering much bigger questions. If I need help, whether that's cooking, bathing, getting dressed, managing medications, or something more serious, who is going to provide that care? Where will it happen, and how is it going to get paid for? Those are the real decisions you're making around housing. And the reason this matters so much is that each of the common paths people take answer those questions very differently. These aren't interchangeable options. They are fundamentally different ways of managing the same set of risks. Said another way, choosing where to live in retirement is not just a lifestyle decision, it's a risk management decision. And I'd argue it's one of the most overlooked ones you'll make right up there with sequence risk, tax strategy and how to structure your estate. So with that reframe in mind, the next question becomes, what are your actual options? Most people are aware of a few of them, but they haven't truly evaluated and compared them side by side. So let's go ahead and briefly walk through the four main options. And for each one, be sure to pay attention to the same four things. What it costs upfront, how predictable the ongoing costs are, who does the coordination work when care needs come up, and maybe most importantly, who ends up holding the bag when things change. So option number one is aging in place. This is the default for most people. You stay in the home you're in, or maybe you downsize to something smaller, and you live there for as long as you possibly can. The upfront cost to make some standard home modifications is usually low to moderate, but ongoing costs are very unpredictable. And that's because housing and care are contracted separately, which means if health needs show up, you're hiring in-home health aides, coordinating medical appointments, and managing it all on your own. That coordination work falls on you, your spouse, adult children, extended family, or even friends. And if a care transition becomes necessary, it's often very disruptive, a rushed move at the hardest possible moment. In this option, you and even perhaps more so your family bear almost all of the risk when things change, which means this option is really best fit for someone with strong support networks and a high tolerance for uncertainty. Okay, next up, option number two is a 55 plus community or a senior rental community. And this can be an appealing middle ground. You sell your home, let go of the costs, upkeep and responsibilities that come with home ownership and move into a simpler living environment designed for older adults. Upfront costs are minimal, rent is predictable month to month, and you get access to social opportunities, shared amenities and a lifestyle that just feels much easier to manage. For someone who wants housing simplicity without paying for bundled care services that they may not ever need, this can be a great fit. Now, the trade off, however, is that health care is usually not built into the model, which means care coordination still falls on you and or your family. And if your health changes later, the lease structure doesn't change. You may still have to evaluate new housing options and manage a disruptive move at a more difficult stage of life. So similar to aging in place, the risk when things change stays largely with you and your family. Option number three is a continuing care retirement community, sometimes referred to as a CCRC or a life plan community. These are integrated systems that bundle independent living, assisted living and skilled nursing into a single campus with one contract coordinated by one organization. The cost structure here is fundamentally different. There's usually a substantial entrance fee plus ongoing monthly fees that are higher than the other options, but more predictable, and that's because some level of care is already bundled in. The benefit is that coordination is handled by the facility, not the family, and when care needs increase, transitions happen within the same community, lowering the risk of a disruptive move. In this model, the organization absorbs much of the risk when things change, but the trade-off is a large upfront capital commitment and reduced flexibility to change course later. We'll dive deeper on these in a moment. Lastly, option number 4 is Assisted Living, Skilled Nursing, or Memory Care. And these are the care-driven options that people typically move into reactively, after a health event forces a decision out of necessity, not by choice. Upfront costs are usually minimal, but ongoing costs tend to rise as care needs become more complex, often bringing a greater loss of independence over time. The benefit is that the facility handles day-to-day care within its licensed scope, which can significantly reduce the burden on a spouse or adult children. However, choices are largely constrained by health, step-ups in care often require another move, and autonomy tends to shrink over time. As you can see, each of these options answers the housing and care question differently. Different cost structures, different cost predictability, different levels of coordination work, and very different answers to one critical question, who bears the risk when things change? On that note, every later-life housing decision is really a trade-off across four specific types of risk. And by understanding how each option handles those four risks, the right path for you and your family becomes a lot clearer. So let's unpack each of them one by one. The first of the four types of risk is called care coordination risk. In plain English, what this means is, if your health starts to decline, someone has to step in and coordinate everything. Someone has to find the right providers, schedule appointments, manage medications, arrange in-home help, deal with insurance, and keep all the moving pieces organized. That job doesn't just magically take care of itself. If you age in place, that responsibility usually falls on a spouse, adult children, extended family, or even close friends. If you move into a CCRC, much more of that coordination is handled by the institution itself. Think about it this way. Care coordination is a full-time job that usually shows up unannounced. And when it shows up, you either pay for it in cash or you pay for it in your family's time and stress. The second risk is known as care transition risk, which is specifically about what happens when your needs increase over time. For example, if you go from living independently to needing assisted living, or from assisted living to needing skilled nursing, how disruptive is that change going to be? Do you get to stay in the same community with the same general surroundings and support system? Or are you suddenly moving to a new building, a new town, and an entirely new group of caregivers? In a CCRC, those transitions often happen within the same campus, which can make the process a lot smoother. Aging in place is different. As care needs increase, each next step often requires a new move, and those moves are often made during a stressful emotional moment, not on your own timeline. The third is care access risk, and this one is about availability. When you suddenly need memory care or skilled nursing, can you actually get what you need? Because if you're making that decision reactively after a hospital stay, a fall or a stroke, you're not planning from a position of calm. You're entering the system at the exact same time a lot of other families are doing the same thing. In a retirement community, residents typically have priority access to higher levels of care when their needs change. Outside of that system, you're going out into the open market, and the open market often comes with waiting lists, limited availability, and fewer good options at the exact moment you're under pressure. And lastly, there's the fourth risk, one that I think is seriously underrated, which is the risk of social and functional decline. As I've touched on in prior episodes, the research on loneliness and isolation later in retirement is pretty sobering. It's linked to faster cognitive decline, worse physical health, and even earlier mortality. And this is where aging in place can become more fragile than it first appears. Because when you stay in your home, your social life often depends on your own energy, your own relationships, and your own ability to get out and about. And when one or two of those things start to slip, the whole setup can start to unravel. That's one reason communities with built-in social infrastructure, whether it's a 55-plus community or a CCRC, can look very different. They don't eliminate that risk, but they do spread it out differently. Now, I want to be careful here, because I don't want anything I'm saying to suggest that I think aging in place is a bad decision. For a lot of people, it's absolutely the right one. If you're healthy, you have strong family support nearby, your home is already set up to accommodate you as you age, and you have the financial flexibility to bring in help when needed, aging in place can work really well. But that's the key. It has to actually work on paper. It can't just be a vague hope that things will somehow come together later. If aging in place is your plan, then it needs to be a real plan, thought through, talked about, priced out and coordinated in advance. Who is helping if something changes? Who's making decisions? How will care be delivered? How will it be paid for? Those answers matter because we'll just stay in the house is not a plan, it's an assumption. Now, with that said, I do get a lot of questions and a fair amount of skepticism and snarky comments about continuing care retirement communities. So I want to spend a few minutes unpacking what they actually are because there are a lot of misconceptions around them. When people hear Continuing Care Retirement Community or CCRC, they often jump to one of two conclusions. The first is, that's a nursing home, which isn't really true. The second is, that just sounds like very expensive housing, which is only partially true. As noted earlier, a CCRC is simply an organization that bundles three things together, independent living, assisted living, and skilled nursing all on one campus. The idea is that you move in while you're still healthy and independent, and if your needs change later, you have access to higher levels of care without having to start over somewhere else. That's a very different model than staying in your home and then trying to solve each care need one at a time, often in the middle of a crisis. The financial structure is different too. As mentioned, most CCRCs have a large upfront entrance fee, often six or even seven figures in some cases, plus an ongoing monthly fee. Depending on the contract and terms that you agree to, part of that entrance fee may be refundable to your estate, and part of what you're paying may effectively secure access to future care at a more predictable cost. That said, this is not a uniform industry. There are nearly 2,000 CCRCs in the United States, and they all vary enormously in price, contract structure, quality and financial strength. So anytime someone says a CCRC is this or a CCRC is that, just know they're talking about a very broad category with a lot of variation inside of it. Now, one of the primary reasons people dismiss CCRCs so quickly is the sticker price can be shocking. If someone hears that there's a non-refundable $500,000 or even $1 million entrance fee, their immediate reaction is, why would I ever pay and commit to that? And that reaction makes sense if you're evaluating it purely as a housing decision. But that's exactly where people get tripped up. A continuing care retirement community is not just housing. It's a bundled solution. Yes, you're paying for a place to live, but you're also paying for future access to care, for smoother care transitions, for built-in coordination, and for some transfer of risk if your health declines. In that sense, it's not really comparable to a traditional home purchase. It's closer to a combination of housing, long-term care planning, and logistical support all wrapped up into one. What you're really doing is pre-funding part of your future care needs and outsourcing a meaningful amount of the complexity that comes with them. And when you look at it through that lens, the economics start to look a little different. As an example, when you age in place, the housing costs may look lower upfront, but the care risk is wide open. You don't know how much care you'll need, how long you'll need it, who will coordinate it, or what kind of burden that may place on a spouse or adult children. Now, does that automatically make a retirement community worth it? Absolutely not. And I want that to be very clear. I'm not saying a continuing care community is the right answer for everyone or even most people. In many cases, it won't be. What I'm saying is that dismissing it as just expensive housing is usually too simplistic. That framing can cause people to rule it out too quickly, or just as importantly, move forward without fully understanding what they're buying. Now, before we move on from retirement communities, there's one more piece here that often gets overlooked, and that's taxes. What many people don't realize is that in some cases, a portion of the entrance fee and monthly dues paid to a retirement community may qualify as a deductible medical expense. In fact, the IRS has issued multiple rulings over the years, recognizing that a meaningful portion of what residents are paying for is effectively prepaid medical care. Depending on the community and your tax situation, that can create a meaningful deduction in the year you move in, and in some cases, ongoing deductions in future years as well. The tax break doesn't magically make a CCRC affordable or the no-brainer choice if it wasn't already deemed as a good potential fit, but it can materially change the after-tax math, and it's another reason why this decision deserves a more careful analysis than most people give it. Now, even if you understand the costs, the contracts and the tax side of all of this, there's still one more piece that matters just as much, maybe more than anything else, and that's timing. Unfortunately, there's no textbook answer or universal age when everyone is supposed to think about housing later in life. However, most retirement and health care planning experts typically agree on one thing. The best time to start is usually when you feel a little too young to be thinking about it. For most people, that means sometime in their 60s or early 70s, maybe even sooner, and their reason is pretty simple. At that stage, you're usually making the decision from a position of strength. You're more likely to be healthy, you have financial flexibility, you can pass the health underwriting that many continuing care retirement communities require, and maybe most importantly, you have time, time to visit places, compare options, read the contracts carefully, and make a thoughtful decision over months instead of days. You also have more options available to you, and that matters because many of these communities don't just accept anyone at any time. Some have multi-year waiting lists, others require you to meet certain health standards. So if you wait until after a major diagnosis, a fall, or a meaningful decline in health, you may not qualify for the communities you would have been eligible for just a few years earlier. That's one of the hardest parts of this conversation. A lot of people assume they can always deal with this decision later. But later often looks very different than what they imagined. Later can mean a stroke, a fall, a dementia diagnosis, or a spouse suddenly trying to manage everything alone. And when that happens, the decision process and framework changes completely. Now the family is scrambling. Options may be limited. The communities you would have preferred may have long waiting lists, or may no longer be available to you at all. And instead of calmly weighing tradeoffs, you and your loved ones are now making high stakes decisions under pressure. At that point, you're no longer making a proactive strategic choice. You're making a reactive one. And the range of options is dramatically smaller. I often think about this topic the same way I think about Roth conversions. The best opportunities exist when you have flexibility. Before required minimum distributions begin. Before your income is forced higher. Before the window starts to close. If you wait too long, you may still be able to do something, but the best opportunities are often behind you. The same basic idea applies here. The best time to evaluate your future housing and care options is before you need them, not after. And just to be clear, exploring your options doesn't mean locking yourself into anything. You can tour communities, you can learn how the contracts work, you can get on the waiting list, you can compare that path against aging in place. You can gather information and still decide that staying in your home is the better fit. That's the beauty of planning early. You keep control, you keep flexibility, and you keep more doors open. But when people wait too long, that flexibility and optionality starts to disappear, and in many cases, the decision ends up being made by circumstance instead of by choice. And there's one more piece here that doesn't show up on a spreadsheet, but always shows up in real life, and that is the emotional side. For many of you, your home isn't just a house. It's decades of memories. It's where your kids grew up, where holidays happened, where life happened. Letting go of that isn't a transaction, it's a transition. And if that feels uncomfortable, that's completely normal. It doesn't mean you're doing anything wrong. It just means you're human. But it's far better to work through that transition on your own timeline than to have it forced on you in the middle of a crisis. What I hope you take away from today's episode is that where you live in retirement is not just a lifestyle question, it's also a risk allocation question. Every option we talked about, aging in place, a 55 plus community, a CCRC, or reactively moving into assisted living, distributes cost risk, coordination risk, transition risk, and the impact on your spouse and family differently. None of these options is universally right or universally wrong. But one of them is going to get chosen either by you or by circumstances. If you have a retirement and a state plan, it should explicitly answer a handful of questions. Who coordinates your care if your health changes? Where do you go if you can't live independently? How does your spouse avoid becoming a full-time caregiver? What does your adult children's involvement actually look like? And is that what everyone actually wants? If those questions don't have answers in your plan today, then the answer is a default. And defaults tend to get made by the hardest event of your life at the worst possible time. The listeners I hear from most often on the show tell me some version of the same thing. They worked hard, they saved well, and they want to spend their retirement on their terms. That includes the last chapter, not just the first one. Making the housing and care decision consciously, not reactively, is how you stay in control of that chapter. And this kind of work, connecting housing, care, taxes, income, and long-term risk into one coordinated picture, is exactly what our total retirement system is built for. My team and I help retirement savers make sure every decision in retirement is working together instead of being handled in isolation. Housing and care is a perfect example because it touches cash flow, taxes, estate planning, and family dynamics all at once. It's the kind of decision that's hard to do justice to on a spreadsheet alone. If you'd like to learn more about our process or schedule a free retirement strategy session, just follow the link in the episode description right there in your podcast app. You can also head over to youstaywealthy.com and click the big purple work with me button to watch a short video of me explaining our process in more detail. We talked about a lot today and to help you take action and start thinking about this important decision, I provided some incredibly helpful resources in today's show notes, which you can find by going to youstaywealthy.com/twoeightzero.

Speaker 2:
[21:30] This podcast is for informational and entertainment purposes only, and should not be relied upon as a basis for investment decisions. This podcast is not engaged in rendering legal, financial or other professional services.