Help seniors see the real bottom line
Many seniors tend to overlook real estate taxes, homeowner’s insurance and other costs.
One common sales deal killer is how our customers frequently view the cost of senior living alternatives. Talking about financial planning is critical, but many owner/operators and their sales and marketing teams either fail to recognize or are reluctant to openly discuss such important issues during critical sales encounters with prospective residents.
I've conducted more than 900 focus groups. One thing I've repeatedly noticed is that many seniors have a flawed financial mindset. For example, many seniors and their families have not considered how they can put the pent-up equity value of their currently owned home to work for them prudently in the later phases of life.
Seniors certainly recognize the value of this passive fixed asset, but they fail to consider how it can significantly augment the affordability of future senior living options. Sales and marketing teams should show seniors the advantages of liquidating their home equity and prudently putting the new cash to work today.
Another serious mindset flaw is how seniors view their true current cost of living. Seniors consistently cannot accurately estimate their current monthly cost of living. They frequently forget non-recurring expenses such as real estate taxes, homeowner's insurance and home repairs. This serious misconception frequently leads to sticker shock when discussing the cost of senior living.
There is a practical solution to put this serious financial dilemma into proper perspective. Address and customize each senior's unique financial situation to show that senior living may, in fact, be affordable.
The Planning Scenario
The setting should be a private sales and marketing office or conference room. The sales professional takes an age- and income-qualified senior, their family members and sometimes a trust officer/financial planner through a simple, but effective, financial sensitivity analysis. Create a customized computer template. Use a screen large enough for all the participants to view. Include the following:
1. Tabulate the senior's available financial resources. This includes Social Security, monthly income derived from his or her current investment portfolio, and any other sources of income, along with an estimate of the senior's typical tax rate. A discretionary spending income reserve — usually about 35% of after-tax income for independent living and approximately 20% for assisted living — should then be subtracted.
2. Estimate the cost of your senior living community. This input should reflect the base monthly service fee for several living options being considered. Include any tiered pricing in assisted living that might be necessary based on the resident's acuity level.
3. Summarize overall affordability (gap or surplus). Compare the senior's total after-tax income with the community's monthly service fee which shows either a surplus or deficit. The analysis also should show the expected equity value of the senior's current home based on an assumed re-sale.
4. Analyze the consumer's affordability. The analysis should consider the following information:
• The annual interest earned on the newly liquidated home equity (invested in a safe fixed income account).
• Social Security income, existing investment portfolio proceeds and other income.
The end result would be the net after-tax cash available for the senior living monthly service fee showing either a surplus or annual spend down/shortfall requirement.
If the analysis reflects a surplus, the senior can clearly afford to live at your community. Conversely, the analysis might show the need for modest spend-down of the savings portfolio at a relatively slow pace with the asset lasting longer than the senior's expected life or residency at your community.
The ultimate expected outcome would be to show the senior and family members the relative affordability of your senior living community — both now and in future years. We have an opportunity — and an obligation — to help seniors and their families properly plan for the future.