I’m 79, my assisted living costs $4,500/month, my Social Security is $2,000 and my pension is $1,000 — but my $175,000 savings are getting drained quickly. What should I do?

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.

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.

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.

Discover how a simple decision today could lead to an extra $1.3 million in retirement

Learn how you can set yourself up for a more prosperous future by exploring why so many people who work with financial advisors retire with more wealth.

Discover the full story and see how you could be on the path to an extra $1.3 million in retirement.

Read More

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).