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Senior Living Blog

How Do You Pay for Independent Living During Retirement?

Posted by Jason Kitchel on Oct 10, 2019 8:18:33 AM

Retirement is built up to be a wonderful time of life when you can relax after spending decades on a career and enjoy the fruits of your labor.

In order for retirement to be the idyllic period, it should be, however, you must be diligent in planning and saving to ensure you have established the sustainable income to move into a quality independent living community while still being able to comfortably afford other items and experiences.

For many people, that requires generating several forms of passive income while also budgeting properly to maintain the lifestyle of their choice.

How Do You Pay for Independent Living During Retirement

The Cost of Independent Living

The cost to move into an independent living community in Federal Way, Washington, and the surrounding area varies depending on the quality of the establishment, the amenities and activities provided, the location, and other factors. If you are considering a private pay retirement community, you will primarily pay out of pocket for independent living expenses. That requires some planning to ensure you are balancing between spending on current needs while also preserving enough for the years to come. The good news is, there are several costs that will disappear when you move into an Independent Living facility.


Applying the 4% Rule of Thumb

As you ponder how to pay for independent living and how much you can safely spend from your retirement account without upsetting your financial stability, a popularized concept to investigate is the 4% rule. According to Investopedia, the 4% rule is a broad determination of how much a retiree should withdraw from a retirement account each year in order to maintain an account balance that keeps income flowing throughout the entirety of their retirement. It was generated using historical data on stock and bond returns over a 50-year period from 1926 to 1976. The idea is that if you only draw 4% annually from your portfolio value, those withdrawals will consist primarily of interest and dividends, so you don’t incur the risk of potentially running out of money.

Whether this is an appropriate percentage to apply depends on life expectancy and increasing medical costs as you age. It also depends on your overall habits and lifestyle. The 4% rule is considered a conservative number to ensure you have financial security and money left over for beneficiaries. However, some people may choose to develop a customized withdrawal plan to have a little extra to spend on achieving the experiences and quality of life in their golden years that they’ve always dreamed of. Others may want to use their money to donate to the community programs or social causes they care about.

The 4% rule also doesn’t take into account whether you have other forms of passive income to help support yourself, which can give you more leeway and financial freedom.


What Are the Best Passive Income Investments?

Passive income includes your pension, but also any other earnings derived from sources that don’t require you to be actively involved, such as annuity payments, capital gains, interest income, and dividends. Passive income sources sometimes require effort or a large expense up front, but they provide you with a steady stream of regular payments for years to come.

For example, you can help pay for independent living with your life insurance policy. Depending on the company that owns your policy, it can be cashed out for a percentage of the face value – generally 50% to 75% – to pay for accelerated or living benefits. It depends, however, on your policy amount, monthly premiums, age and health, so it’s best to check directly with your life insurance company.

Another type of passive income includes renting out a property. If you aren’t ready to part with your primary home after moving into a retirement community or you wish to bestow it to a beneficiary, you can rent it out to help cover independent living costs. Other people buy second homes or properties for the specific purpose of renting them out. However, being the landlord for multiple rental properties can turn into a time-consuming and stressful process, unless you’re working with a property management company.

Other forms of passive income include:

  • Investing in dividend stocks, which provide current income and have the potential to generate capital gains.
  • Peer-to-peer lending, or using online lending cooperatives such as Lending Club or Prosper to invest your money into small businesses or individual entrepreneurs.
  • Purchasing an annuity, which is a combination insurance-investment product that guarantees income that pays out through your remaining years.


Moving to Your New Independent Living Community

It can be daunting to think of paying for independent living, especially within a top-notch community that offers the amenities, services, and support to provide you with a high quality of life. However, you may have access to more sources of passive income than you realize. As you consider moving to an independent living community nearby, remember that the right financial planning – on your own or with the help of a financial adviser – can set you up for the retirement you’ve always dreamed of. Start designing your future today by starting the inquiry process and looking at the range of floor plans available at Village Green Retirement Campus.

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“4 Ways to Create a Passive Income in Retirement.” U.S News & World Report. Accessed online at https://money.usnews.com/money/blogs/on-retirement/articles/2016-08-03/4-ways-to-create-a-passive-income-in-retirement

“Four Percent Rule.” Investopedia.com post. Accessed online at https://www.investopedia.com/terms/f/four-percent-rule.asp

“12 Ways Retirees Can Make Money Without Retiring.” MoneyTalks News. Accessed online at https://www.moneytalksnews.com/ways-retirees-can-make-money-through-passive-income/

“Independent Living in Federal Way, Washington.” SeniorAdvice.com. Accessed online at https://www.senioradvice.com/independent-living/federal-way-wa

“10 Creative Ways to Pay for Independent Living.” Caring.com article. Accessed online at https://www.caring.com/articles/pay-for-independent-living/

“Don’t cheat yourself with the 4% rule.” MarketWatch.com. Accessed online at https://www.marketwatch.com/story/dont-cheat-yourself-with-the-4-rule-2018-05-04

Tags: Financial Planning