Senior Planning with

A Roof Over Their Heads

What you need to know about housing
options for elderly parents.

by: Maggie Mahar

Once upon a time, extended families lived Waltons-style, in single-family homes. But today even close-knit families rarely nest together. Take Kathy Nolan: She and her six siblings live in seven different states, and their 78-year-old mother in another. They each visit their mom a couple of times a year, but her doctor says she can no longer live alone. Helen Nolan has become increasingly disoriented.  Sometimes she forgets to turn off the burners on the stove. Kathy and her siblings have talked about asking their mother to move in with one of them, but who would take care of her? Kathy, her sisters, and sisters-in-law all have full-time jobs.

The Nolans (whose names have been changed to protect their privacy) face the heart-wrenching dilemma that many members of the "sandwich generation" know well. Torn between the needs of aging parents and those of their own children, spouses, and careers, they try to sort out their responsibilities. Sometimes the parent is seriously ill. Other times he or she just requires assistance with the ordinary activities of daily life: cooking, getting in and out of the shower, climbing stairs. In either case, the parent can't function independently day after day. So what's a family to do?

"Years ago, the elderly had only two choices, go into a nursing home, or move in with the family," says Lauren Jones, a senior program coordinator of independent living and long-term care at the American Association of Retired Persons (AARP). "But things have really changed." Nursing homes (live-in facilities where the majority of residents may be seriously ill or infirm) are increasingly viewed as a last resort. And moving elderly parents in with extended families is hard at a time when 60 percent of women work outside of the home. Many working families who attempt to hire part-time help for parents who live with them find that "it's very expensive and piecemeal. Sometimes the person has to leave early, other times she doesn't show up," says Donna Phillips, director of communications at the Asbury Methodist Village, a not-for-profit retirement community in Gaithersburg, Maryland. That puts a tremendous strain on everyone.

Meanwhile, seniors themselves have become increasingly vocal about their rights to independence, dignity, and privacy. Their message is often the same: They love their children and grandchildren, but they don't want to live with family. When the AARP polled members over 75, more than 80 percent said that they wanted to stay in their own home.

"Keep Them at Home by Reversing the Mortgage"
Many parents dream of growing old in the house where they raised their family. Reverse mortgages can help them do just that. This kind of loan allows seniors to tap the equity in their property without moving, and anyone over 62 who has paid off the mortgage on his home or condo can qualify. Instead of sending monthly payments to a bank, the borrower receives money from the bank in the form of a lump sum, a line of credit, or a monthly check.

This amounts to a loan with interest rates that are 3 to 5 percent higher than standard 30-year mortgages, but the bank is paid back only when the owner dies, sells, or moves out. At that point, the money borrowed, plus fees and accrued interest, is repaid from the sale of the home. If the net value of the house exceeds the amount owed, any difference goes to the borrower or the estate. But if the house winds up selling for less than the loan amount, neither the owners nor their heirs will ever owe the bank money. This is the risk that the bank takes when it makes the loan. For seniors, the upside of a reverse mortgage is that it provides cash and requires no monthly payments; the downside is that a bequest can't be made of the house itself.

The amount of the payouts will vary based on the home's value, current interest rates, and the borrower's age. In Minnesota, for instance, a 75-year-old who owns a $150,000 house could expect to receive continuous monthly payments as high as $650 or a lump sum or a credit line of $75,000, according to the National Center for Home Equity Conversion. Depending on how much care is required, that amount could be enough to pay for the part-time household help that would allow an aging couple to remain in their own home, or just enable them to meet their living costs. (For more information on reverse mortgages, write the AARP Home Equity Information Center, 601 E Street, NW, Washington, D.C., 20049, or visit the National Center for Home Equity Conversion's Web site at www.reverse.org.)

"Consider New Residential Care Options"
Marguerite Miller's 93-year-old mother-in-law lives in Asbury Methodist Village, and when Marguerite describes the facilities, she sounds almost envious. "She has a three-bedroom apartment, a beautiful kitchen, and her meals and housekeeping are provided. They're even putting in a theater and swimming pool," she says. "My husband and I always joke that we can't wait to move in!"  Asbury Methodist Village is just one of many excellent live-in communities that can be found in every state. There are two types: Assisted-living centers (ALCs) allow patients to live "on their own but not alone." Residents live in independent apartments with options that range from meals and housekeeping to laundry service and nursing care. If a resident becomes severely ill, however, he or she will have to leave the ALC. That's why a new breed of facility has become the option of choice for families that can afford its higher costs. Continuing-care retirement communities (CCRCs), like Asbury, provide a continuum of care ranging from independent living to full-time nursing services. Their campuses contain several different types of living facilities residents can live in an apartment or even a single-family residence with their own furniture. Then, as needs change, the CCRC will provide whatever care is required, from nurses who visit the apartment to relocation to an on-site live-in nursing home. To create a like-minded community, some CCRCs have membership requirements, such as a specific religious, ethnic, or professional background.

It pays to shop early for a residential care center because the best ones tend to have long waiting lists. The Consumer Consortium on Assisted Living suggests making surprise visits to the prospective facilities, eating a meal there, and staying overnight much as you would when choosing a college. Their Web site, www.ccal.org, provides an excellent checklist of questions to ask about costs, contracts, and services (for a printed copy, which costs $5, call 703-533-8121).

Buyers do need to beware. "Families should read the contracts very, very carefully," says the AARP's Jones. "For instance, if a parent goes into a hospital for a medical crisis, can he come back to an assisted-living center?" Centers will be worried about the resident's safety and their exposure to lawsuits. Continuing-care retirement communities are unique in that they promise lifetime shelter, but if you run out of money in either an ALC or a CCRC, you may be asked to leave. "There can be a big difference between for-profit and not-for-profit centers," points out the not-for-profit Asbury's Phillips. "If a resident can no longer meet the monthly fees, our foundation helps pay. No one is ever asked to leave." That may not be the case at a for-profit institution. (The American Association of Homes and Services for the Aging, in Washington, D.C., can provide information on other not-for-profit ALCs and CCRCs, and their Web site, www.aahsa.org, offers a listing of facilities nationwide.)

"Be Prepared for the Costs Involved"
Can middle-class seniors really afford assisted living or continuing care? The answer is yes up to a point. Most residents sell their homes when they enter either type of center, using the proceeds to pay up-front charges. At Asbury, for instance, entrance fees range from $44,000 (for a studio) to $215,000 (which fetches a three- bedroom apartment). In addition, residents pay monthly fees, which vary depending on the cost of care in the region and the range of services provided. But the fees rise dramatically when an elderly person needs full-time specialized care. At Asbury, monthly fees begin at $900 (for a studio with one meal daily) and rise to $58,000 (for help with bathing, dressing, and eating, plus three meals, housekeeping, and laundry).

"Many families are shocked to discover that Medicare and supplemental Medi-Gap insurance pay for only very limited long-term care," reports Enid Kassner, a senior policy adviser at the AARP. Once Medi-Gap coverage dries up, parents have only their savings to rely on. After those are depleted, Medicaid kicks in, but it usually pays only for nursing homes (in some cases home care is covered) one reason why so many seniors wind up in these facilities, whether they need to be there or not.

To help pay for the high cost of aging, more and more people are buying long-term-care (LTC) insurance. For those with income and assets, these policies provide a good way to supplement health insurance by covering services such as visiting nurses, assisted-living centers, and nursing homes. The plans pay benefits for a lifetime, ranging from $100 to $500 a day when a patient becomes physically or mentally disabled through old age, illness, or accident. "Pre-existing conditions are not usually a barrier," says Denise Klingman, who heads up the Life and Health Division of the Owens Group, an insurance brokerage in Englewood Cliffs, New Jersey. "Only a handful of conditions make a parent uninsurable Alzheimer's, hepatitis C, or Parkinson's, for example. A person can get insurance even if he has had a heart attack, quadruple bypass, a stroke, liver cancer, or lung cancer," she explains. "The insurance company just wants to be assured that the illness has been controlled and that the person is seeing a physician, and isn't in need of long-term care at the time the application is made."

Benefits kick in if a parent suffers severe cognitive impairment (such as Alzheimer's or senile dementia) or is unable to perform any two "activities of daily living," such as bathing, dressing, eating, or going to the bathroom. The best policies allow the money to be used to hire in-home care, or to pay for services in an assisted-living center, continuing-care community, or nursing home. But not all policies are created equal. Your parents' policy should probably include an inflation rider (which raises benefits 5% annually from the time they sign up for a higher premium, of course). Also, check that the policy is "tax-qualified" (which ensures that benefits will be tax-free); that their doctor, not the company, decides when they are eligible for benefits; and that benefits will remain the same whether they stay in their own home, an ALC, a CCRC, or a nursing home. A guide published by United Seniors Health Cooperative helps analyze policies ($18.50 from 800-637-2604), while Weiss Ratings, a company that rates insurers' financial stability, will provide a customized comparison of policies ($49 from 800-289-9222).

LTC insurance is not cheap (see "Insuring Your Own Future," at left), and in many cases children chip in to cover the cost. If parents resist the expense, saying, "What if I never use it?" try to gently point out that this is like worrying that your insured house will never burn down. Moreover, odds are better than 50-50 that, at some point, seniors will need nursing care. Finally, emphasize that they're not just paying for benefits, they're buying peace of mind for the whole family.

"Money Clip"
"Insuring Your Own Future"
Investing has become the national pastime. But in addition to funding that IRA or 401k, there's another crucial step baby boomers can take now to prepare for retirement: Buy the best long-term-care insurance you can afford.  One of these plans will cover you for life, providing $100 to $500 a day for health care, including assisted-living centers.

Annual premiums are set for life when you buy in, and doing so while you're in your 50s keeps the fees down. "The cost increases by about 8 to 10 percent a year," points out Denise Kligman of the Owens Group, an insurance brokerage in Englewood Cliffs, New Jersey. For example, according to the AARP, a typical lifetime policy that would pay benefits of $100 a day in today's dollars (with an inflation kicker raising those benefits by 5 percent annually) would cost $1,680 a year if you purchased the plan when you were 50; $2,203 if you waited until you were 60; and $4,306 if you took out the policy when you were 70.

An extra annual payout of $1,680 per person is not a small sum for 50-something couples, yet many middle-class boomers put $2,000 a year into a 401k or an IRA, and a quick cost-benefit analysis suggests that they might be better off putting the same money into long-term-care insurance: A 50-year-old investor who puts $1,680 a year into a retirement savings plan earning 8 percent a year for 15 years will wind up with $45,615, which will generate taxable income of just $3,649 annually. If, on the other hand, he begins paying premiums of $1,680 a year for LTC insurance, he will immediately own a policy that will pay tax-free benefits of $36,500 a year plus 5 percent compounded annually whenever he needs it, for as long as he lives.

 

 

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