Jan 9, 2025
Many elderly Americans who have mobility issues and can no longer live independently move into assisted living facilities. Unlike a nursing home, an assisted living facility (ALF) provides support to seniors who are still able to live relatively independently, but still need some support with daily activities such as bathing, grooming, meals, housekeeping and medication administration.
In your case, the monthly Social Security check and pension are not enough to cover the cost of living in such a facility. There is $175,000 in retirement savings, but obviously there’s concern about draining those savings and running out of money.
Looking ahead and doing the math
While you could look for a less expensive ALF, $4,500 is actually below the nationwide monthly median cost of assisted living, which was $5,350 in 2023, according to the Genworth Cost of Care survey. This monthly cost can range dramatically, depending on your state and region, from $3,800 in Mississippi to $9,563 in the District of Columbia. Assisted living is still slightly less expensive than paying for in-home care.
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In your case, the cost of assisted living works out to $54,000 a year, and about $36,000 is covered by your pension and Social Security. You’re about $18,000 short a year, or $1,500 a month, so you will rely on personal savings to make up the difference.
At age 79, your estimated lifespan (at least according to the Social Security Administration’s calculations) is around 10 years. This means you need around $180,000 in savings to afford assisted living for the rest of your life.
The good news is that by investing your money, you can withdraw $1,532.73 every month for 10 years even if your average annual investment return is as low as 1%. If your portfolio is more aggressive and your average annual return is 6.5%, your savings will last you 15 years if you withdraw $1,500 a month. This is before considering costs or fees associated with investing.
The bad news is that the cost of assisted living will not remain static throughout your lifespan due to inflation, and it could really surge if there are more global crises like the coronavirus pandemic. The cost increased 1.4% from 2022 to 2023, but a total of 18.9% from 2021 to 2023, according to Genworth.
You could also live longer than you expect. Indeed, half of residents (49.9%) in ALFs are older than age 85, according to the CDC.
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So, you’ll want to make sure your returns keep up.
An extremely conservative portfolio may not provide the growth you need to last throughout retirement, so you may require a new approach to the way you think about your investments. You might also consider adding some income to pay for assisted living, such as bonds, dividend-paying stocks and annuities. Consult a financial adviser who could help you structure a portfolio with the right balance of risk and return.
If you can continue growing your current nest egg and possibly bring in some additional income, you’ll be in a much better position if you outlive the average American life span. It could also help you leave something behind as part of your legacy, whether that’s leaving an inheritance to your children or grandchildren, or making a donation to a charity.
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The state of assisted living in America
Some Americans assume that assisted living will be covered by Medicare after the age of 65. It’s not; Medicare only covers short-term nursing home stays. Under Medicaid, there may be partial coverage, depending on your eligibility (you’d have to be considered a low-income senior). But whatever the case, don’t assume it’s fully covered. However, some states have their own long-term care programs, so it’s worth looking into your options.
Private long-term care insurance is a supplementary insurance policy that can help cover the cost of assisted living (and other forms of long-term care), since most general health insurance plans won’t pay for it. While it could make sense for some people — especially for someone with health issues (or a family history of health issues) — private long-term care insurance is typically quite expensive.
That means many retirees end up paying for assisted living out of pocket, using a mix of Social Security, retirement funds and personal savings (and in some cases the proceeds from selling their former home).
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Vawn Himmelsbach is a veteran journalist who has been covering tech, business, finance and travel for the past three decades. Her work has been featured in publications such as The Globe and Mail, Toronto Star, National Post, Metro News, Canadian Geographic, Zoomer, CAA Magazine, Travelweek, Explore Magazine, Flare and Consumer Reports, to name a few.
