The Hidden Costs of Aging in Place: What Baby Boomers Need to Know
As featured in Straight Arrow News
The housing market has a baby boomer problem. With 61% of boomers saying they never plan to sell their homes, millions of properties are staying off the market, creating a bottleneck for younger buyers. But as I recently told Straight Arrow News, there’s a critical financial planning aspect that many families aren’t considering.
“Most people prefer to age in place, which is fine if you’re planning for it and you can pay for it,” I explained to the publication. “I’ve had plenty of clients who thought, ‘I can take care of Dad’ at home, and it works until it doesn’t.”
The Real Cost of Staying Put
The desire to age in place is understandable and often the right choice. However, too many families make this decision based on emotion rather than comprehensive financial planning. The math isn’t always as simple as “keeping the house is cheaper.”
Consider these often-overlooked costs:
Home Modifications: Most homes need significant updates for safe aging in place. Bathroom renovations, stair lifts, ramps, and wider doorways can easily cost $15,000-$50,000 or more.
Increased Care Costs: While institutional care is expensive, professional in-home care can be equally costly. Full-time care at home often runs $4,000-$6,000 per month in many markets.
Opportunity Cost: The equity tied up in a large family home could be generating income elsewhere. A $500,000 home represents potential investment income that many retirees desperately need.
Family Financial Strain: Adult children often shoulder unexpected costs when parents age in place, from lost wages due to caregiving responsibilities to emergency home repairs.
The Capital Gains Red Herring
Many families point to capital gains taxes as the reason for not selling, but this often masks deeper issues. Yes, the tax implications are real, but they shouldn’t drive the entire decision. For many families, the tax cost is manageable compared to the long-term financial benefits of right-sizing.
More importantly, capital gains concerns can prevent families from having crucial conversations about care preferences, family dynamics, and realistic long-term costs.
A Better Approach to the Decision
Rather than defaulting to “we’ll figure it out,” families need structured planning that considers:
1. Total Cost Analysis: Calculate the true cost of aging in place versus alternatives over 10-15 years, including home modifications, care costs, and opportunity costs.
2. Care Preferences and Realistic Assessment: Honestly evaluate the level of care that may be needed and whether the home can accommodate it safely.
3. Family Capacity: Assess the real ability and willingness of family members to provide care, including the financial impact on their own retirement security.
4. Flexibility Planning: Build in decision points and triggers for when the plan might need to change.
The Bottom Line
Aging in place can be a wonderful option, but only when it’s properly planned and funded. The families who succeed are those who make the decision based on comprehensive financial analysis rather than hope and emotion.
If you’re part of the 84% of Americans planning to age in place, make sure you’re planning for it financially. The time to have these conversations and run the numbers is now, while there are still options and choices available.
Eric Ludwig, CFP®, is Director of the Center for Retirement Income at The American College of Financial Services and CEO of Stockbridge Private Wealth Management. If you’d like to discuss aging in place planning or retirement income strategies, contact our team for a consultation.