With emphasis on "casual," "low wages" and lawbreaking. Many home health care aides will work for cheap as long as the employer breaks the law and does not pay the employer's share of social security and medicare taxes. This helps ensure the low income employee does not get caught for failing to pay self-employment taxes.
Anyone with so much money they can afford round the clock health care surely is a bit concerned about his/her reputation as a law abiding citizen. Plus the typical home health aide really needs to have some kind of retirement plan, and often this will be solely social security--assuming they actually pay their self-employment taxes or their employer pays their Medicare and SS taxes.
No lawbreaking is necessary. As I recall, my relative did make social selcurity contributions and whatever other payments were required by state law. All things considered, I would guess she provided more benefits than Wal-Mart. I suggest that anyone considering this kind of plan run the numbers and allow for such extra costs. I still believe it would be more cost effective than a nursing home. There are intangible benefits like keeping your own home, having more control over your daily living, and so on. And on the other side of the ledger there are definitely risks associated with choice of a nursing home and entry into one.
Correct, it is not. However, paying SS and Medicare taxes pushes up the hourly wage about 9%.
Really? Did she offer a 401(k)? Job advancement opportunities? Health insurance opportunities? Working at Wal-Mart also has the benefit of protecting employees' rights through employment law. Your relative could fire at will. Not so with Wal-Mart.
There is also the reality that keeping good help requires paying more than what local agencies pay. I have a wealthy relative who did round the clock health care for a short while until another relative of hers ran the numbers and found her savings would be wiped out in five years at the rate she was spending money on home health care. At a very nice nursing home, the costs were such that she could stay indefinitely.
Round the clock home health care has its advantages, but in my experience, unless one breaks the law, financial savings generally will not be one of them.
My limited experience with nursing homes is that the "very nice ones" are not easy to find. And the "nice" ones that do exist are the most expensive ones. There are also problems in avoiding scams and overcharges. It does not make sense to trade the high costs of home care for the even higher costs of a luxury class nursing home.
My relative lived in a small town in a largely rural area. The people who looked after her were part-time employees who had other jobs or who really didn't need extra income together with health and pension benefits. Some of them were ladies she had known for many years and were doing it as much as a favor to her as for the money. In that situation, talk about social security and other benefits is pretty much beside the point, although the law was respected. My guess is that if she had given up her home (in which she had lived her entire life) for a nursing home, she would have become depressed and died sooner.
The home-care scenario is not for everyone, but it is an alternative worth considering. Another attractive plan is to rent out a room or two in the house to a live-in caregiver with a deduction for the work done, or possibly rent-free. For a homeowner whose health problems are not too serious, that would be one way to avoid a reverse mortgage.
Any home-owner whose health problems are not too serious is not in need of nursing home care. Nursing home care is for people who are unable to care for themselves. They need help dressing or feeding themselves, remembering which medications to take when, often need help with toileting, that sort of thing. Home care for such individuals is much like private nursing care and is quite expensive - much more expensive than the "nice" nursing homes.
Yes, that is true. We should also bear in mind that costs of medical treatment and hospitalization are over and above the cost of living in a nursing home.
There aren't many other ways to have a life-estate in the house. Another way is via a partial sale of the house - ie. the sale of a "remainder interest" in the house with the retention of that life estate. You have to find a buyer who is willing to make a bet on your life expectancy. Usually the only such buyers are family members who expect to inherit the house anyway. Any buyer has to take into account the uncertainty in when they will actually get the property and therefore will have to charge a higher than market rate (ie. mortgage rate) of interest to compensate them for that additional risk. Just as the reverse mortgage rates are higher than regular mortgages.
The problem with selling and renting is that your rent may go up over time and you, of course, still have to live somewhere. If you sold the house and bought a big fixed life annuity, you still have the danger that your costs of living can go up above the fixed annuity payment over time if you live for long. Of course, you have similar problems with the cost of home maintenance and repairs and insurance, but those are generally a lot smaller than rent.
The best option is really probably selling and downsizing into a smaller - but paid-for - place and using the resulting cash as well as you can - again, possibly with a fixed immediate annuity if you want to be sure you don't outlive the money. And if it comes down to it, eventually, that reverse mortgage remains an option on the new smaller place (which, by that time, will hopefully be worth more than it was purchased for, too).
But some folks really want to stay in the homes in which they've lived for a long time. One of my neighbors has been in her house for 60 years. Who knows what it'd take to get her to downsize or move. Of course, she's got a load of kids and grandkids and may want to leave them the house, but I'd doubt that anyone there is really counting on a big inheritance from her and if she wanted to tap that equity to improve the quality of her life while remaining in the home she's had all those years, why shouldn't she? (Of course, this instance may be a good opportunity for the family members to do exactly that sort of purchase which would be a way for them to give her cash while keeping the house in the family. Moreover, $250,000 of cap gains would be untaxed and the rest would be first at her lower rates, though that big gain may affect some other taxation (ie. SS payments, etc) for the year of the sale.
Anyway, that one particular piece of voodoo - the life-estate - is probably the trickiest part of finding an alternative to the reverse mortgage. Inherently, it's like insurance where the ultimate economic cost is affected by the difference between estimated life expectancy and how long the person actually lives. I know of a couple of stories where someone took the other side of that bet and ended up waiting *decades* longer than expected to get their property.
If the kids buy the place with a life estate for mom, they had better be buying it with money they don't need back anytime soon. (And I'd hope that they'd hope the same thing).
It does not compare the ongoing (and increasing) costs of homeownership to the ongoing (and increasing) costs of rent.
I am suggesting that rent has to cover not only all those maintenance and repair costs - somebody has to pay them - but also continuing compensation for the landlord's capital investment. Rents go up. Period. So do costs of homeownership (whether that home is a single-family house - likely the most expensive way to go - or a condo apartment).
However, my point was - and still is - that even if one has a life-estate in one's home (single-family house or otherwise) - there are ongoing costs associated with keeping that house and that those ongoing costs do go up over time. Which is precisely what that article said. And if someone takes out a reverse mortgage and gets to keep the house, those ongoing costs still mean that the person may not afford to be able to keep that house *up* and we have to be very careful to take those ongoing homeownership costs into account when planning on such a person's spending - especially spending down of the equity they'd built up which is irreplaceable.
We disagree. The article argues convincingly that renting may be a better financial choice than owning, now and in the future.
What you are missing is that sharing always reduces costs of any shelter. Sharing by way of say a hundred tenants in one building; uniform construction; property tax and insurance divvying. This is why renting is often a better choice financially than owning.
I was not interested in the other points. There is no need to repeat them unless you just like to re-read your own posts.
Are we talking about the same article? The word "rent" doesn't appear in the article cited above. All it says is that repairs are expensive.
They're expensive on rentals, too. Barring special circumstances, like the landlord taking a loss, or just running the property down, repair costs have to be covered by the rent. -- Doug
That important fact is often overlooked in comparisons of the costs of renting vs owning. Back in the 1980s when inflation was rampant, it was generally accepted that it is wise for young people to plan for home ownership as soon as possible, in order to have inflation protection in future years.
After our more recent experience with a long period of relatively low inflation, it seems that advice to rent instead of buy is turning up more and more frequently, perhaps because those earlier times have been gradually forgotten. If inflation ever roars back in the future, the pendulum will probably swing in the other direction, and everybody will urge that owning your home is a good plan.
Sorry. It's that article along with others that I am remembering, e.g. the January 29, 2001 WSJ article "Unwise Wisdom: Buying a House Is Better than Renting"
The subject is well-discussed on the net. I do not know why anyone would dispute the fact that which is superior from a financial standpoint depends.
I think one thing being overlooked here is how {renting and investing money in stocks} compares to {paying a mortgage and the cost of a home's upkeep} over the long run. Still I agree the discussion du jour is influenced by what inflation has been doing lately. Reviewing how inflation was double digits a few times in the mid-70s/early 80s is worthwhile.
I bought my first house in 1975 and sold it in 1989. I got 5 times what I paid for it. If I add all of my expenses over the 14 years we stayed there, including the mortgage payments, insurance, taxes, even utility bills, I still made a profit at the closing. I was basically reimbursed for the money I spent there and then some. If I had rented for those 14 years I would have walked away without a penny and all of the rent paid would be long forgotten. I won't see that kind of price appreciation in the house I bought in 1989 but I'm living here for the taxes and utilities. I do most of the upkeep myself, I enjoy it and I can do it. People should realize that a mortgage is usually a 30 year proposition, inflation will return. Anyone who can afford a house should buy one and especially if you plan to live in it for a long time. All renting will do is get you a drawer full of receipts.
Not counting your expenses, this is an annual return of about 12%. Inflation averaged about 6% during this period. So one can estimate the annual real return of your house investment at about 6%. Not counting expenses, you actually did better with the house than in the stock market, which I hope you know is rare. Shiller's study says the historic annual real return on a house is about 0.4%.
You got lucky. The next person may not be. In general, other persons did not do as well.
What is this, 2005? Surely you know where this advice got a lot of people.
That is a good point. If you do some of the upkeep yourself, costs can be kept under control. It is interesting that some renters like to do some upkeep too, even though there is usually no financial gain for them. Any upkeep, handyman chores, etc. done by renters has zero return for them, but certainlty helps the owners of the property. Landlords frequently make deals with tenants: "I'll buy the paint, if you do the work," etc.
People (like me) who invest in rental property can see first hand how rents tend to rise as time passes. They usually take it as a given in making plans. I wonder how many people who invest in rental property rent the houses they live in themseves instead of owning them. Very few I would guess.
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