Financial Planning for Aging in Place

Aging in place means continuing to live in your own home and community as you grow older rather than automatically moving into a retirement residence or long-term care facility. For many retirees, staying at home provides familiarity, independence, and a strong connection to their community.

But aging in place doesn't happen by accident. Your home may eventually need modifications, healthcare and support costs can increase, and your retirement income needs to be flexible enough to handle unexpected expenses. A good financial plan should therefore consider not only your investments and retirement income, but also the cost of maintaining a home and paying for care.

According to AARP's 2021 Home and Community Preferences Survey, 77% of adults age 50 and older said they wanted to remain in their homes as they age. At the same time, 33% said their homes would need modifications to allow them to remain there safely and independently.

1. Introduction to Aging in Place

Aging in place refers to living in your own home and community safely, independently, and comfortably as you age. It doesn't necessarily mean that you will never need assistance. Instead, the goal is to create a plan that allows your home, finances, healthcare arrangements, and support network to adapt as your needs change.

For some people, that may mean installing grab bars and improving lighting. For others, it could eventually mean hiring a cleaner, receiving meals at home, arranging transportation, or paying for personal-care assistance.

The earlier you consider these possibilities, the more choices you'll have when you need them.

2. Assessing Your Financial Situation

Before making decisions about aging in place, take a close look at your financial situation. Start by identifying all of your income sources, including Social Security, CPP, OAS, pensions, retirement accounts such as 401(k)s, IRAs, RRSPs and TFSAs, taxable investments, rental income, and other sources of cash flow.

Tools like Retirementize's income calculator can help you estimate how much retirement income your savings may be able to provide.

Estimating Retirement Expenses

Don't forget to account for expenses that can become more important later in retirement. These can include healthcare, prescription medications, insurance, property taxes, utilities, home maintenance, transportation, accessibility renovations, and paid assistance around the home.

Healthcare costs can be particularly difficult to predict. In the United States, Fidelity's 2024 estimate indicated that a 65-year-old retiring in 2024 could expect to spend an average of $165,000 on healthcare and medical expenses throughout retirement. That figure does not mean every retiree will spend that amount, and it does not represent long-term-care costs specifically.

Canada's publicly funded healthcare system covers many medically necessary services, but retirees may still face significant out-of-pocket expenses for items such as prescription drugs, dental care, vision care, mobility equipment, private home-care services, and other supports.

3. Budgeting for Long-Term Healthcare Needs

Healthcare and personal-care costs are among the biggest uncertainties in a retirement plan, particularly if you hope to remain at home as your needs increase.

Medicare and Medicaid in the United States, and Canada's provincial healthcare systems, do not necessarily pay for all of the ongoing assistance someone may require at home. Depending on the jurisdiction and circumstances, long-term care, personal support, home-care services, medications, and other expenses may require private funding.

Long-Term Care Insurance

Long-term care insurance can help transfer some of this financial risk to an insurer, although availability, premiums, eligibility requirements, coverage limits, and policy definitions vary considerably.

For perspective, Genworth's 2024 Cost of Care Survey reported a national median annual cost of $77,792 for home health aide services in the United States. Actual costs can vary substantially by location and by the number of hours of care required.

Rather than assuming that insurance will solve the problem, include a potential long-term-care expense in your retirement plan and consider how your investments, pension income, government benefits, insurance, and home equity could work together.

4. Home Modifications and Costs

One of the biggest financial considerations when aging in place is whether your current home can safely accommodate you as you get older.

Potential modifications can include:

• Installing grab bars and handrails
• Improving lighting
• Replacing slippery flooring
• Installing a walk-in or low-threshold shower
• Raising or replacing toilets
• Widening doorways
• Improving exterior entrances and walkways
• Installing ramps or stair lifts
• Adding motion-activated or smart-home lighting
• Improving accessibility to the kitchen and bathroom

The cost can range from relatively inexpensive safety improvements to major renovations costing tens of thousands of dollars. The important point is to think about these expenses before they become urgent.

Financial Assistance for Home Modifications

There may be government programs and tax incentives that can help offset some accessibility-related renovation costs.

In Canada, the Home Accessibility Tax Credit allows eligible individuals to claim qualifying home-accessibility expenses. The annual eligible-expense limit is currently $20,000. The credit is available to qualifying seniors and certain individuals eligible for the Disability Tax Credit, subject to CRA requirements.

Canada also has a Multigenerational Home Renovation Tax Credit for certain renovations that create a secondary unit to allow a qualifying senior or adult eligible for the Disability Tax Credit to live with a qualifying relative.

In the United States, assistance may be available through federal, state, local, nonprofit, and community programs, although eligibility and funding vary. Always verify the current rules before relying on a particular program.

5. Housing Options: Should You Rent, Buy, or Renovate?

Another major decision is whether your current home will continue to make financial and practical sense as you age.

You may decide to:

• Stay in your current home and modify it.
• Downsize to a smaller, easier-to-maintain property.
• Move to a home with fewer stairs and better accessibility.
• Move closer to children, family, healthcare, or public transportation.
• Rent instead of owning.
• Move into a retirement community or other supportive housing arrangement.

Home equity can also become part of the retirement-income plan. In the United States, reverse mortgages can provide access to home equity without requiring the homeowner to sell the home. Canada also has reverse-mortgage products, although the costs and terms should be carefully evaluated before using one.

The important question isn't simply "How much is my house worth?" It's "What role should my home play in my overall retirement plan?"

6. Income Strategies for Aging in Place

Once you've estimated your expenses, you'll need to determine whether your retirement income can comfortably support them.

For Americans, this may include Social Security, pensions, retirement accounts, and taxable investments. For Canadians, CPP, OAS, pensions, RRSPs, RRIFs, TFSAs, taxable investments, and other sources can all form part of the income plan.

The timing of government benefits can also affect your retirement income. For Canadians, CPP can generally be started as early as age 60 or delayed as late as age 70, with the monthly amount adjusted based on when benefits begin.

Visit our articles on taking CPP early and delaying CPP to explore the different considerations.

Part-Time Work in Retirement

Part-time work or consulting can provide another source of income while allowing you to remain in your home. It may also provide social interaction and a sense of purpose.

Check out our article on the best part-time jobs for retirees for ideas that may provide flexible income.

7. Tax Planning and Strategies

Taxes should be included in your aging-in-place plan because the amount of income you keep can be just as important as the amount you earn.

For example, retirees may need to consider the tax consequences of withdrawals from traditional retirement accounts, RRSPs and RRIFs, investment income, pension income, and the sale of investments.

Homeowners should also understand the tax rules surrounding their principal residence and any potential sale or downsizing. In Canada, the principal residence exemption can generally shelter qualifying gains on a principal residence, subject to the applicable rules and reporting requirements.

Accessibility renovations may also qualify for tax credits, depending on where you live and whether you meet the applicable requirements.

8. Creating an Emergency Fund for Aging in Place

An emergency fund is particularly important when you own a home because unexpected expenses can arise at any time.

A major roof repair, furnace replacement, plumbing problem, vehicle repair, accessibility renovation, or unexpected healthcare expense can quickly disrupt a retirement budget.

Many financial planners recommend keeping several months of essential expenses in readily accessible savings. The appropriate amount depends on your income stability, pension coverage, investment portfolio, insurance, home condition, and personal circumstances.

Consider using the Retirementize calculator to help estimate your retirement savings needs and determine how unexpected expenses could affect your plan.

9. Planning for Inflation

Inflation is especially important for retirees because many expenses can increase while certain sources of income may not keep pace perfectly with those increases.

Healthcare, home maintenance, property taxes, insurance, utilities, groceries, and paid caregiving services can all become more expensive over time.

Rather than planning for today's costs only, build inflation assumptions into your retirement projections. A retirement plan that works at age 65 may look very different at age 85 if expenses rise faster than expected.

10. Estate Planning Considerations

Estate planning is another essential component of aging in place.

Your plan should include an up-to-date will, powers of attorney for property and personal care where applicable, beneficiary designations, and a clear understanding of how your assets will be handled if you become unable to manage them yourself.

This is particularly important if you own your home and intend to leave it to family members. Discuss your wishes with the people who may eventually need to help you.

Estate planning isn't only about what happens after death. A good plan also addresses who can make financial and personal decisions if you become temporarily or permanently unable to do so yourself.

11. Insurance for Aging in Place

Insurance can help protect the financial plan you've spent decades building.

Review your homeowners insurance, life insurance, disability coverage, long-term care coverage where available, automobile insurance, and other policies periodically.

Make sure you understand what each policy actually covers. For example, homeowners insurance generally isn't designed to pay for ordinary long-term caregiving expenses, and long-term-care insurance may have specific definitions and limits that determine when benefits become available.

Conclusion

Financial planning for aging in place is about much more than having enough money saved for retirement. It means thinking ahead about where you want to live, how your home may need to change, how much healthcare and personal assistance could cost, and how your income will adapt as your needs change.

The best time to consider these issues is before you need them. Making relatively small changes to your home today may prevent a much larger and more expensive renovation later. Building an emergency fund can provide flexibility when something goes wrong. And incorporating potential care costs into your retirement plan can help you understand how much financial flexibility you really have.

Whether you ultimately stay in your current home, downsize, move closer to family, or choose another housing option, the goal is the same: create a retirement plan that gives you choices.

Be sure to explore more helpful resources on our blog, including retirement phases, the four percent rule, and kids staying home longer.

---

---