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Middle/Low-Middle Income Seniors Need Financial Assistance to Pay for Housing and Care

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Summary: The senior housing industry risks alienating a large part of its potential market. The median price of assisted living and independent living in the 31 largest MSAs already outstrips the incomes of seniors in the middle and low-middle categories. These seniors need financial assistance to afford these median monthly fees.

Data: Seniors in the $20,000 to $40,000 income range are identified as being stuck in the middle; they make too much to qualify for Medicaid-pay properties but not enough to afford most private-pay communities, as described in a previous post.

The table below shows that seniors with $20,000 of annual income can afford to spend $1,500 per month on housing, food, and care, if they allocate 90% of their income to these categories. With an average independent living rent of $3,096 in the top 31 MSAs, the monthly shortfall totals $1,596. The deficit relative to assisted living is even greater, at $2,446 per month.

A senior with $40,000 of income will be better off, but will still have monthly deficits of $96 and $946 for independent and assisted living, respectively.

Many seniors have access to other means of paying for their housing and care and can cover some level of shortfall by spending down assets, taking supplements from family members, and cashing in long-term care insurance.

As for availability of other assets, the Census Bureau does not cross-tabulate income and assets by age group, so other data comes into consideration. For example, a recent series of articles [abstracted here] from Boston College’s Center for Retirement Research describes results of a survey on the financial well-being of current senior housing residents. (The survey has limitations but it does include income and assets cross-tabulations.)

The survey reveals that the sample of 2,500 respondents had a high level of financial well-being: The highest net worth residents had the most income. At the same time, a significant share of the lowest net income group had income in the highest category. This latter, somewhat surprising result means that residents have likely converted assets into annuities, boosting their monthly incomes while reducing net worth totals.

Note that the Boston College survey is biased by including only current residents of a senior housing community; it does not have statistics on the financial situation of the general population as a baseline.

As for other family member support, it happens at a relatively low level. A 2003 report from Harvard’s Joint Center for Housing Studies indicates that 15% of assisted living residents receive financial assistance from family members. Government assistance (mostly in the form of Supplemental Security Income) is equally common, at 13.5%.

Analysis/Implications: It is not surprising that family support is relatively limited; adult children of seniors often confront their own financial challenges (raising kids, paying tuition, servicing debt) in the no growth/slow growth economy of the past five years. Faced with a significant gap between income and the cost of senior housing, middle income seniors will potentially conclude that senior housing is not for them. The industry therefore risks alienating a large segment of the potential customer base, unless it can come up with a cheaper solution.

Discussion/Topics for Further Work: How much can the middle segment of seniors afford to pay? What do you think is an attractive price point for independent living? For assisted living? Can the industry create a private pay solution? Please share your thoughts and ideas in the comments section.

Related links:

United States Census Bureau www.census.gov

National Investment Center for the Seniors Housing and Care Industry www.nic.org

Joint Center for Housing Studies Harvard University www.jchs.harvard.edu

Center for Retirement Research at Boston College http://crr.bc.edu/