One of the major concerns for people of any age, but especially seniors, when we discuss discretionary aging in place projects – those not necessitated by a medical condition where insurance or a third party is covering much or all of the improvements – is money. Where do they find the money to agree to the improvements? How can they agree to a budget that they can live with and commit to honoring?
Without sufficient funds to commit to and undertake a renovation project, the work cannot commence, the project must be scaled back from what really is deemed necessary, or less expensive or lower-end solutions must be used.
Interestingly, seniors may have more money for aging in place projects than they think. The money may not be sitting in their checking account or their savings, but they may it just the same. Two possible sources are life insurance policies and investments.
Anyone born before 1960, and some even later than that – all of the Baby Boomers to be sure – were encouraged to buy a whole life insurance policy years ago. Some have dropped them, cashed them in, or converted them to term policies. A small number of people did not buy such policies in the first place, but most people did. It’s what people did then, especially as they were starting families.
The point is that people who own a whole life insurance policy, paid-up or not but more-than-likely paid in full by now, can borrow against their policy or take out a policy loan. Depending on the face value of the policy, they may have a substantial cash balance in their policy that they can borrow – subject to being reduced by previous policy loans. Unlike a 401K or other savings plans, there is no penalty for withdrawing the money. Interest accrues on the unpaid balance once the loan is made, but the money never needs to be repaid. At death, the benefit (face value) is simply reduced by the amount of the policy loan and unpaid interest. If it is repaid, in part or in full, that adds back toward the original face value of the policy.
A life insurance policy loan has the capacity to cover many renovation projects regardless of any other monies that the client may or may not have to use. This essentially is a hidden asset that many people forget that they have.
In terms of other investments, precious metals (gold, silver, platinum), coin or stamp collections, and other collections that can be sold and liquidate (entirely or in part) may provide the funds to use to undertake an aging in place renovation project. Of course, a 401K or other investment vehicle such a Roth or other IRA can provide funds for improvements also.
These two types of assets, in addition to other monies that people may have available, including home equity loans, second mortgages, or home improvement loans, often are available to people without them consciously considering them.
Another type of financing tool that everyone has available to them is a federal income tax deduction – in addition to anything that might be offered at the city, county, or state level. According to Publication 502 of the IRS, anything that is done to the home that does not increase its value can be included as a customary and normal medical expense for anything exceeding ten percent of the filer’s adjusted gross income.
The IRS specifically excludes elevators because it deems them to be adding value to a home, but they do specifically allow activities such as stairlifts and VPLs, widening hallways, improvements to lighting and switches, adding entrance or exit ramps, widening doorways (exterior or interior), installing grab bars and railings in bathrooms, modifying kitchen cabinets, improving stairways, changing door hardware, or grading the ground to provide more level access to the home. This is a potentially huge funding source for seniors or anyone else desiring to make aging in place improvements to their home. They have to spend the money from some other source, but they get to receive the deduction for it on their income taxes as long as they itemize their return on Schedule A.
Thus, seniors (and other ages) have financial resources available to them that they possibly had not considered, had overlooked, or were not aware of that they can use for aging in place improvements. We can guide them in thinking about using such programs.