Friday, July 31, 2015
Which is More Terrifying? "Dying Early" or "Living Long" (and Doing Financial Planning Necessary for the Latter)?
The New York Times recently carried a column that probably hit home with many -- if, that is, one could bring oneself to read it. While some people keep postponing "the conversation" discussion about how they want to die, there is plenty of evidence many people are also avoidant of conversations about financial planning for a long life.
Educating consumers to be better purchasers seems a sensible idea, but an example from recent history illustrates the problem with that. For a long time, the simple investment advice given to consumers has been “buy an index fund.” Index funds are such standardized products — mirroring the Standard & Poor’s 500-stock index does not require much management — that just about all of them were initially low cost while offering wonderful diversification.
Consumers have been buying index funds, and the market has responded by providing hundreds of them. Nearly all E.T.F.s are index funds.
But the market has also responded by charging high fees for this standardized product. In 2004, Ali Hortacsu and Chad Syverson, economists at the University of Chicago, found that index funds had as much variability in fees as their more labor-intensive actively managed counterparts. And these fees are nothing to be scoffed at — paying 1 percent more every single year in fees can compound over a lifetime to noticeably lower returns.
For more on the problem with financial advice -- with encouragement to "face up to something [you too] may have been dreading," read Why Investing Is So Complicated, and How to Make it Simpler, by Sendhil Mullainathan.
My thanks to Prof. Laurel Terry and Jack Bennett, Esq. for sharing this column.
Monday, July 27, 2015
Law Reform: A Proposed Remedy for "Deeply Toxic" Damage to Higher Ed Caused by Abolition of Mandatory Retirement
Bentley University Professors Beverley Earle and Marianne Delbo Kulow have a nicely provocative article in the Spring 2015 issue of the Southern California Interdisciplinary Law Journal, titled The "Deeply Toxic" Damage Caused by the Abolition of Mandatory Retirement and its Collision with Tenure in Higher Education: A Proposal for Statutory Repair. From the introduction:
There are very few positions that offer the level of protection that tenure does. One such position is a federal judgeship, which is distinguishable because of the very public nature of the work. If a judge performs inadequately, community backlash may quickly develop that could usher in a publicly coerced retirement. For example, a state judge, who recently gave a lenient sentence to a convicted rapist of a minor who committed suicide, has announced his retirement following pubic outrage.Tenured faculty members, unlike judges, labor in the relative isolation of the classroom, where feedback comes at the end of the semester and then only via student evaluations. This creates the first of two problems for higher education in the United States stemming from the abolition of mandatory retirement: the difficulty of removing a tenured professor for poor performance.
In most universities, only egregiously poor performance by a tenured professor is flagged for termination; outdated, boring, or barely adequate, teaching may not sufficiently stand out to warrant a more intense review. There is also a slow feedback loopdue to minimal, if any, post-tenure peer classroom evaluations and skepticism about student evaluations of teaching. Therefore, often many semesters pass before there is sufficient evidence to persuade a professor or her superiors that the tenured professor's employment status should be reevaluated. Inadequacies in scholarship can be even more difficult to discern, given the common time lag between research and publication, as well as the variations between disciplines in frequency, length, and format of publications.
The second distinct challenge faced by higher education caused by the coupling of the abolition of mandatory retirement with the institution of tenure is the prospect of stagnant departments: no new faculty may be hired because there are no vacancies....
The authors' proposed reforms include "expiration" of tenure for professors reaching age 70, while permitting continued employment opportunities on the same evaluative standards as non-tenured faculty.
Monday, July 20, 2015
Marquette Law Professor Paul Secunda always has interesting perspectives, and that is again true with his recent article, The Behavioral Economic Case for Paternalistic Workplace Retirement Plans, to be published in an upcoming issue of the Indiana Law Journal. From his SSRN abstract:
Dependence on 401(k) retirement accounts continues to cause a massive retirement crisis in the United States by leaving most workers unprepared for retirement. The voluntary, inaccessible, employer-centered, expensive, and consumer-driven nature of these plans has combined to make retirement a type of corporate-inspired elder abuse in America.
Behavioral economics considers the utility of permitting individual choice in decision-making settings. Many, however, have been misled to believe that more choice is always better. Yet, according to one prominent commentator, this consumer-driven paradigm will lead to forty-eight percent of current workers between the ages of fifty and sixty-four being poor when they reach retirement. Behavioral economic workplace research instead strongly suggests that a better approach would be to use “choice architecture” to nudge workers into well-diversified, low-fee default retirement accounts set up by government-regulated private retirement funds.
Such a successful paternalistic workplace retirement model already exists. The Australian Superannuation Guarantee is a mandatory, universal, private, and comparatively inexpensive workplace retirement scheme. It also aligns the interests of retirement fund managers with fund participants. Most Australian employees do not exercise choice with regard to how their retirement contributions are invested. Employer contributions default into an individual’s MySuper retirement account operated by the country’s best money managers, who invest worker funds in a diversified manner, while charging very low investment fees.
As part of my Stewart Lecture remarks, I outline here a vision for the transformation of the American 401(k) retirement system into an efficient and sustainable superannuation model based on behavioral economic insights from the Australian workplace retirement system.
Friday, July 17, 2015
Prudential has released its findings from its 8th biennial survey of women on their financial experiences and behaviors. Financial Experience & Behaviors Among Women covers 2014-2015. The foreword offers this insight
Women still have a number of identifiable financial goals, of course. High on their list: having enough money to maintain their lifestyle throughout retirement, to cover health care expenses and to reduce personal debt. They also don’t want to become a financial burden to loved ones or outlive their savings. And they define financial success as achieving a comfortable, financially secure retirement. The difference is simply that they no longer attach as high a degree of importance to these goals as they did a few years ago.
The report discusses the "confidence" of women to achieve their goals, their use of financial advisors and their understanding of financial products. Perhaps somewhat unsurprising, the foreword also mentions that "[o]ne of the biggest perceived impediments to reaching financial goals is not having enough disposable income to dedicate toward them, cited by about half of women. But they also admit to a lack of familiarity with financial products and the sense that they simply don’t know what to consider when evaluating their options."
Page 11 of the report discusses differences between the generations. For example, the report notes that 65% of baby boomers reported confidence that they will be able to maintain their style of living through retirement.
Sunday, June 28, 2015
In Binder v, Binder, decided June 26, 2015, the Nebraska Supreme Court affirmed an award against the husband for alimony in the amount of $3,200 per month. This was the amount necessary to cover the wife's balance due each month for her nursing home care. The divorcing couple, each in their mid 90s, had been married for 32 years, a second marriage for both. Married in their 60s, they had no children together. The husband had at least one child from a prior marriage; his son leased the husband's farmland for more than 25 years to continue operations.
The husband argued that the alimony award, exceeding his own $2,800/mo income from Social Security and rental of his farming property, was an abuse of discretion as it lowered his income below "poverty thresholds" set by state guidelines for child support awards. The Court ruled, however, that in the absence of minor children, the guidelines were inapplicable. Nonetheless, the Court also addressed the "reasonableness" of the award and concluded:
In reviewing an alimony award, an appellate court does not decide whether it would have awarded the same amount of alimony as the trial court. Instead it decides whether the trial court's award is untenable such as to deprive a party of a substantial right or just result. The main purpose of alimony is to assist a former spouse for a period necessary for that individual to secure his or her own means of support. Reasonableness is the ultimate criterion.
Applying these factors, we cannot say that the amount of alimony is an abuse of discretion. Glenn sought to dissolve his nearly 32–year marriage to Laura after she began incurring expenses for essential nursing home care that are well beyond her means. Laura did not work outside the home during the marriage, she is not employed now, and there is no evidence that she has untapped earning capacity. Similarly, Glenn is retired and has no wage income. But while Laura has exhausted nearly all her assets, Glenn has the power to dispose of more than 200 acres of farmland. The land is not irrelevant to alimony even though it is Glenn's premarital property. A court may consider all of the property owned by the parties—marital and separate–in decreeing alimony.
As to disputes over matters such as Laura's contributions to the marriage, we note that the district court was in the best position to judge the witness' credibility. Although our review is de novo, if credible evidence is in conflict on a material issue of fact, an appellate court considers and may give weight to the circumstance that the trial judge heard and observed the witnesses and accepted one version of the facts than another. This rule is particularly apt here because both Laura and Glenn had some trouble testifying and the record does not show to what extent their difficulties were cognitive, auditory, or other.
In reading the decision, I'm struck by questions of what -- or even who -- was driving the divorce, and to what extent the parties' decisions were affected by Medicaid eligibility issues. For more history, as well as comments by the husband's attorney, see "Retired Farmer Must Pay More in Alimony Than Monthly Income," in the Omaha World-Herald.
Thursday, June 18, 2015
Earlier this week I recommended Atul Gawande's book, Being Mortal: Medicine and What Matters in the End, and I offered an excerpt from his discussion of how doctors are impacted by practical limits on their goals as solvers of problems. But the book is about more than just medicine. Another compelling chapter traces attempts to avoid "nursing homes" and the once cutting edge trend of "assisted living" as an alternative:
The idea spread astoundingly quickly. Around 1990, based on [Keren Brown] Wilson's successes, Oregon launched an initiative to encourage the building of more homes like hers. Wilson worked with her husband to replicate their model and to help others do the same. They found a ready market. People proved willing to pay considerable sums to avoid ending up in a nursing home, and several states agreed to cover the costs for poor elders.
Not long after that, Wilson went to Wall Street for capital, to build more places. Her company, Assisted Living Concepts, went public. Others sparing up with names like Sunrise, Atria, Sterling, and Karrington, and assisted living became the fastest growing form of senior housing in the country. By 2000, Wilson had expanded her company from fewer than a hundred employees to more than three thousand. It operated 184 residents in eighteen states. By 2010, the number of people in assisted living was approaching the number in nursing homes.
But a distressing thing happened along the way. The concept of assisted living became so popular that developers began slapping the name on just about anything. The idea mutated from a radical alternative to nursing homes into a menagerie of watered-down versions with fewer services. Wilson testified before Congress and spoke across the country about her increasing alarm at the way the ideas was evolving....
For more, see Chapter 4 of Being Mortal, titled "Assistance." The other intriguingly-named chapters are "The Independent Self," Things Fall Apart," "Dependence," "A Better Life," "A Better Life," "Letting Go," "Hard Conversations," and "Courage."
June 18, 2015 in Consumer Information, Current Affairs, Ethical Issues, Federal Statutes/Regulations, Health Care/Long Term Care, Housing, Medicaid, Property Management, Retirement, State Statutes/Regulations | Permalink | Comments (0)
Tuesday, June 16, 2015
During the last two years I have had the fascinating opportunity to work on two major studies of laws and government policies affecting older persons and their families in Northern Ireland, studies initiated by the Commissioner for Older People for Northern Ireland (COPNI). The earlier study looked at safeguarding systems. Now the second study has been made public, with Northern Ireland Commissioner Claire Keatinge using the work to recommend major reforms of Adult Social Care laws in her country. The formal launch of her "call for change" occurred on June 16 in Belfast.
Two of my four research colleagues, Dr. Joe Duffy (far left, who led the research team) and Dr. Gavin Davidson, (far right) both of Queens University Belfast, were present for the launch, with Joe giving introductory remarks to the audience of government officials and community stakeholders. The fourth member of our team is Dr. Subhajit Basu of the University of Leeds in England. Our research evaluated government policies and law in more than ten nations, looking for legal trends, best practices and cutting edge social care programs.
Significantly, in addition to recommending a comprehensive legislative framework and funding structure to coordinate services for all adults in need of assistance, one key recommendation announced by Commissioner Keatinge (left center above) and highlighted in our investigative report, is to implement a "Support Visit" for any interested person age 75 years or older, by an appropriately trained health and social care worker. This recommendation, which draws upon Denmark's successful experience with a "preventative home visitor" program, would create an opportunity for a psychosocial dialogue aimed at advance planning. The goal is to help individuals and family members anticipate needs in the event of functional impairment, thus reducing the need for crisis planning.
I've become a big fan of Commissioner Keatinge; she is clear, creative, realistic, and determined to see Northern Ireland become a world leader in recognizing not just the needs but the contributions made by older adults. She does so from a platform of respecting older persons' contributions, citing research to demonstrate that over the next several decades, older adults will contribute more than £25 billion to the Northern Ireland economy through formal work, volunteering, and their roles as caretakers for both adults and children.
It had been an honor for me to work on this social care reform project. The work has given me -- and Dickinson Law students serving as research assistants, Ryan Givens and Tucker Anderson (who used his ability to speak and translate Danish to help in our field research) -- important new perspectives on proactive ways to identify and address potential needs triggered by age-related changes in demographics. Frankly, in the U.S. we spend far more time (and arguably too much time) on issues of medical care. This report is a reminder that many health-care crises could be avoided or mitigated through more proactive implementation of social care networks.For more on the Duffy, Davidson, Basu, Pearson report (June 2015), see Review of Legislation & Policy Guidance Relating to Adult Social Care in Northern Ireland.
For more on Commissioner Claire Keatinge's call for reform, see Commissioner Calls for Overhaul of Adult Social Care.
See here, for more on Denmark's approaches to services, communication and programming for older people.
Special thanks to Ryan and Tucker for their research, proofreading, editing and translation skills!
June 16, 2015 in Consumer Information, Current Affairs, Elder Abuse/Guardianship/Conservatorship, Estates and Trusts, Ethical Issues, Health Care/Long Term Care, Housing, International, Retirement, Science, Social Security, Statistics | Permalink | Comments (0)
Thursday, June 11, 2015
The Government Accountability Office (GAO) released a report dated May, 2015 on Retirement Security: Most Households Approaching Retirement Have Low Savings. The 51 page report is available here. The GAO offered this summary:
Many retirees and workers approaching retirement have limited financial resources. About half of households age 55 and older have no retirement savings (such as in a 401(k) plan or an IRA). According to GAO's analysis of the 2013 Survey of Consumer Finances, many older households without retirement savings have few other resources, such as a defined benefit (DB) plan or nonretirement savings, to draw on in retirement (see figure below). For example, among households age 55 and older, about 29 percent have neither retirement savings nor a DB plan, which typically provides a monthly payment for life. Households that have retirement savings generally have other resources to draw on, such as non-retirement savings and DB plans. Among those with some retirement savings, the median amount of those savings is about $104,000 for households age 55-64 and $148,000 for households age 65-74, equivalent to an inflation-protected annuity of $310 and $649 per month, respectively. Social Security provides most of the income for about half of households age 65 and older...
Studies and surveys GAO reviewed provide mixed evidence about the adequacy of retirement savings. Studies range widely in their conclusions about the degree to which Americans are likely to maintain their pre-retirement standard of living in retirement, largely because of different assumptions about how much income this goal requires. The studies generally found about one-third to two-thirds of workers are at risk of falling short of this target. In surveys, compared to current retirees, workers age 55 and older expect to retire later and a higher percentage plan to work during retirement. However, one survey found that about half of retirees said they retired earlier than planned due to health problems, changes at their workplace, or other factors, suggesting that many workers may be overestimating their future retirement income and savings. Surveys have also found that people age 55-64 are less confident about their finances in retirement than those who are age 65 or older
Highlights of the GAO report are available here.
Wednesday, June 10, 2015
Mark your calendars. The date for the WHCOA has been set for July 13, 2015. The event is going to be webcast live. Folks are encouraged to watch it and even tweet questions for the panelists at the conference. For more ideas and information, click here.
Tuesday, June 9, 2015
A recent article from the Washington Post focused on an important topic, whether aging comes naturally to us. I don't mean physiologically, because as we all know, we age without any conscious effort on our parts. Instead, Aging doesn’t always come naturally. Classes are teaching boomers how. focuses on a program on how to age successfully. Is there a need for a program to tell us how to do well something that just seems to happen? "[B]oomers tend to see themselves as forever young and have sometimes been reluctant to embrace the last stage of life with the same gusto as their youthful activism, said Lylie Fisher, director of community development at Iona" (a non-profit that runs the programs). Iona offers a Take Charge/Age Well academy which according to the website, teaches students "how to navigate the opportunities and challenges of aging through presentations from Iona’s aging-in-place specialists. The specialists offer expert advice, wellness coaching, guidance on critical decision-making, and information on planning for the future. " The Post article also mentions co-housing, which is covered in one of the programs.
Check out the article, as well as the program's website. Very interesting!
Monday, June 8, 2015
The Wall Street Journal ran an interesting article on May 31 about longevity and how to have a fulfilling life with those extra years of living. How to Make the Most of Longer Lives focuses not just on planning financially for living longer, but questions what to do with those added years to be sure one has a meaningful life. The author suggests "[w]e need to marshal imagination and ingenuity to devise new strategies for enhancing the whole range of experiences in later life, including education, faith, housing, work, finance and community" and then offers six suggestions to increase the quality of life: (1) give a new name to this period of life; (2) smooth the way to transition into this part of life (or as the author explains it retirement and then "un-retirement" is "a do-it-yourself process. It’s time to help make this post-midlife passage more efficient and suited to preparing individuals emotionally and spiritually for what lies ahead."); (3) education specifically for the second half of life (4) financial security; (5) promote multi-generational housing; (6) create a model where inventors brainstorm new ideas for this part of life.
The author concludes with reference to the upcoming White House Conference on Aging and the challenges that await all of us with aging.
Wednesday, June 3, 2015
The Employee Benefits Research Institute (EBRI) has released the results of their annual retirement confidence survey. The 2015 Retirement Confidence Survey is available here. There are also 7 fact sheets that highlight specific findings, including caregivers, retirement confidence, changing expectations, preparing for retirement, age comparisons, gender & marital status, and attitudes about Social Security & Medicare.
Tuesday, June 2, 2015
A few days back I wrote about a new study on family caregivers published by Pew. The Employee Benefits Research Institute (EBRI) has added to the body of literature on the topic with its 2015 Fact Sheet #7 from EBRI's 2015 Retirement Confidence Survey. Financial Support & Unpaid Care Provided by Americans The purpose of the annual survey is to gather data about "potential barriers in building up assets or maintaining them." One question "[I]n particular, [asked about] the amount of financial support provided for relatives or friends and the amount of unpaid care provided for them as well." Perhaps the results will surprise you. "Three in 10 (29 percent) workers and 2 in 10 (20 percent) retirees report they are currently providing financial support to a relative or friend." The survey also inquired about unpaid care, which as we know has a cost to the caregiver. When asked respondents whether they provided unpaid care, the survey found "[t]wenty-three percent of workers and 16 percent of retirees responded that they did so."
The fact sheet offers a couple of other interesting data points. The spouse is actually not frequently the recipient of the care, with "5 percent of retirees and 4 percent of workers name their spouse as a recipient of their care." As far as the amount of time spent providing care, slightly over 40% of workers and a little under 40% of retirees provided fewer than 9 hours a week in care.
Sunday, May 31, 2015
The GAO has issued a new report on how Home & Community Based Services & Supports are delivered. Older Adults Federal Strategy Needed to Help Ensure Efficient and Effective Delivery of Home and Community-Based Services and Supports is a 60 page report that "addresses (1) federal programs that fund these services and supports for older adults, (2) how these services and supports are planned and delivered in selected localities, and (3) agencies’ efforts to promote a coordinated federal system of these services and supports." The GAO recommends in the report "that HHS facilitate development of a cross agency federal strategy to ensure efficient and effective use of federal resources for HCBS. HHS concurred and HUD, DOT, and USDA did not comment." A number of topics are covered, including transportation, aging in place, information and referral, housing, in-home services, and food assistance. The report discusses the importance of cross-agency collaboration. The GAO concludes that
As the older population continues to grow, communities will find it increasingly difficult to meet the demand for the HCBS and supports many older adults will need to age in their own homes and communities. Based on recent trends, federal funding at AoA, HUD, and DOT for HCBS and supports is not likely to keep pace with demand for these services and supports, making it important to ensure that the federal resources available for this purpose are used effectively and efficiently. Development of a cross-agency federal strategy could better position the federal agencies to assist area agencies on aging and community-based organizations with providing HCBS and supports in the most efficient and effective manner. Under the Older Americans Act, AoA is responsible for facilitating the provision of home and community-based services and supports for older adults in this country, in coordination with CMS and other federal agencies. As a result, AoA is well-positioned to lead collaboration among the five federal agencies covered in our review. However, because of increases in Medicaid spending and emphasis on the role of HCBS in supporting health care patients, CMS has become an even more important partner to AoA in meeting older adults’ expected demand for HCBS. Thus, it may be most appropriate for the HHS Secretary to take the initiative in developing such a cross-agency federal strategy.
Thursday, May 28, 2015
Transamerica Center for Retirement Studies has issued their 16th Annual Retirement Survey of Older Workers. Retirement Throughout the Ages: Expectations & Preparations of American Workers was released in May of 2015. The 81 page report offers a number of key highlights, including views by age group (in ten year increments). The report provides recommendations for workers, employers and policymakers. The report offers this conclusion
Workers of all ages have similar challenges, dreams, fears, and expectations of retirement. Depending on their age and stage in life, they also face unique opportunities to improve their long-term financial security. Although it may seem overwhelming for many, taking one step at a time can lead to significant improvements over the long-term. The following three pages of these Key Highlights outline such steps for workers, employers, and policymakers.
It’s never too soon or too late to start saving and planning for retirement.
Wednesday, May 27, 2015
On several occasions we have blogged about the increasing need for family caregivers. Thus the new report from Pew Research Center is quite timely. Family Support in Graying Societies: How Americans, Germans and Italians are Coping with an Aging Population was released in May 2015. The purpose of the report is to provide an
understanding intergenerational relations in three countries that are undergoing rapid aging – the United States, Germany and Italy. Parallel surveys were administered in these three countries, the grayest of the West’s advanced economies, to explore the ways in which families are coping or providing support across generations as they experience this major demographic shift. The surveys were conducted among 1,692 adults in the United States, 1,700 in Germany and 1,516 in Italy, from Oct. 27 to Dec. 18, 2014.
The report is divided into six sections, including demographics & financial profiles, family providing care, aging in the 3 countries, helping parents, helping the kids who provide care and keeping in touch. There is very valuable information in the report. The full report runs 59 pages and is available here.
Tuesday, May 26, 2015
The Employee Benefits Research Institute (EBRI) published a note in April, 2015 that looked at the question of how much money people have at the end of their lives. A Look At the End-of-Life Financial Situation in America. Here is what the study examined
This report takes a comprehensive look at the financial situation of older Americans at the end of their lives. In particular, it documents the percentage of households with a member who recently died with very few assets (total assets as well as non-housing assets). It also documents income, debt, home-ownership rates, net home equity and the share of their income coming from Social Security benefits for those households.
This report is useful as part of the work by EBRI in looking at retirement security and whether people will have sufficient funds to last the rest of their lives. Here are some bullets from the conclusion:
- For those who died at ages 85 or above, 20.6 percent had no non-housing assets and 12.2 percent had no assets left.
- Among singles who died at or above age 85, 24.6 percent had no non-housing assets left and 16.7 percent had no assets left.
- Those who died at earlier ages were generally worse off financially: 29.8 percent of households that lost a member between ages 50 and 64 had no assets left.
- People who died earlier also had significantly lower household income than households with all surviving members.
- Among singles who died at ages 85 or above, 9.1 percent had outstanding debt (other than mortgage debt) and the average debt amount was $6,368.
- The average net equity left in their primary residence for those who died at ages 85 or above was $141,147 and $83,471 for couple and single households, respectively.
Wednesday, May 20, 2015
This week I attended the 16th Annual Meeting of the Massachusetts Life Care Residents Association (MLCRA) near Boston. Having last met with the group in 2011, I was impressed with the residents' on-going commitment to staying abreast of legal and practical developments affecting life care and continuing care (CCRC) models for senior living. Their organization has some 800 individual members, representing a majority of the communities in the state.
My preparation for the meeting gave me the opportunity to read one of those troubling "unpublished" -- but still significant -- opinions that shed light on attempts to make consumer protections stick. Here the "contract" trumped the statute.
In a February 2014 decision in Krens, v. 1611 Cold Spring Road Operating Company, a son who sought refund of his deceased mother's $282,579 partially "refundable" Entrance Fee was denied relief by a Massachusetts appellate court, despite the fact that Massachusetts law expressly mandated that a continuing care contract "shall provide" for a refund to be paid "when the resident leaves the facility or dies." The reasoning? The actual contract provided merely that the refund could be paid "within 30 days of actual occupancy of the vacated unit by a new resident." More than three years had elapsed since the mother's passing, apparently without the unit being "resold" or rented, and therefore the CCRC operating company took the position that no refund obligation had been triggered.
May 20, 2015 in Consumer Information, Estates and Trusts, Ethical Issues, Health Care/Long Term Care, Housing, Property Management, Retirement, State Cases, State Statutes/Regulations | Permalink | Comments (1) | TrackBack (0)
Monday, May 18, 2015
Publically-traded Brookdale Senior Living, founded in 1978, has grown to become the largest owner and operator of "senior living" communities in the U.S., including for-profit continuing care retirement communities (CCRCs). Thus, it is good to keep an eye on the finances of Brookdale for those of us interested in the long-term financial health of CCRCs and other senior housing options.
Steve Monroe at Irving Levin Associates notes that Brookdale "was no different than the rest of the market, posting sharp drops in first quarter occupancy" for 2015:
"The legacy Emeritus [a component of Brookdale, following a 2014 merger] properties posted a 110 basis point decline from the fourth quarter of 2014, and a whopping 200 basis point decline from a year ago. The legacy Brookdale properties dropped 80 basis points sequentially and 110 basis points from a year ago. This was not good news, but not unexpected. Oddly enough, the legacy Brookdale properties had a 250 basis point increase in community operating margin to 35.2% despite the occupancy declines. The Emeritus properties had a 90 basis point sequential drop in margin, which makes more sense."
How do you achieve a significant increase in "operating margin" despite "occupancy declines?" A good question to ponder. Steve Monroe continues: "The reasons for the legacy Brookdale improvement were a combination of cost controls and more pricing flexibility. Move-ins have been increasing, which is great, but 'cost controls' always make me nervous, especially with the current acuity creep. Stay tuned."
The reference to "acuity creep" is to the increase in average age and frailty of new residents, compared with past years (especially before the financial crisis of 2008-10). This trend impacts CCRCs in several ways, both in terms of market appeal to healthier potential residents, and operating costs tied to an earlier need for higher levels of care. An additional question may be whether low interest rates have supported a bubble in certain segments of senior housing despite the softer occupancy rates, and whether an eventual return to higher capitalization rates will result in lower values and additional consequences.
Along that same line, the Philadelphia Inquirer published a recent article in their "retirement" news edition, noting "Continuing-Care Retirement Community Choice Requires Diligence," by Harold Brubaker, with tips on what to ask if you are a consumer considering a CCRC option.
Wednesday, May 13, 2015
One option for seniors needing more income late in life is using the equity in their homes, and "reverse mortgages" may make it possible for the older homeowner to stay in the home longer. The Washington Post recently explored the option of having family members serve as the source of reverse mortgage funding. When the Kids Provide a Reverse Mortgage for Mom and Dad outlines potential pros and cons of family-based financing, starting with the mechanics of the loan:
Here’s a simplified example: Say you and two siblings want to help Mom and Dad, who are in their late 70s. You and your siblings are all doing well enough that you have at least some cash to spare. Ultimately, you want to retain your parents’ house for the estate once your parents pass away, keep costs to a minimum and sell the property only when you, not a faraway bank, choose to do so.
So you sit down with Mom and Dad and determine that, at least for the foreseeable future, they will need about $1,500 in additional income a month. You and your siblings agree to apportion the payments among yourselves in some way, maybe a commitment of $500 a month each for a period of years. You also pick an interest rate that achieves a win-win result for you and your parents — say, 3 percent annually. That’s much lower than a commercial lender would charge but higher than what you’ve been earning on your bank deposits or money market funds. There are no required fees upfront — hey, it’s Mom and Dad.
Thanks to Maryland elder law attorney Morris Klein for the pointer to this article.