MDS

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A Two Generation Company - Serving Clients For Over 39 Years

Strategy Of The Month for January/February 2009

STRAIGHT TALK ABOUT SENIOR

CONSUMER FINANCES

The Don’t Ask – Don’t Tell Era is Over!

      Those of us in the senior housing industry tend to take business and financial cycles pretty much in stride.  Most of us look at a fairly broad time frame and recognize that economic cycles “come with the territory”.  But age 80+ seniors have a much shorter financial time horizon.  And the economic trends from 2000 through 2008 have had some very significant, and possibly irreversible, impacts for many seniors.  This should serve as a mild wake-up call for our industry.

The Senior Consumer’s Financial Dilemma

      It’s time to get very specific by looking at the real world of senior consumer finances.  The income qualified senior consumer has been hit very hard in several areas involving their investment and savings returns; a necessary part of their total income.  For example, the S&P 500 stock index for the years 2000 through April, 2008 has experienced a total gain over the eight year period of only 5.3%.  The Wall Street Journal has characterized the past ten years as the “lost decade of investment”.  In terms of CD’s and Treasury Bills, seniors are now only realizing cash savings rates in the 2% to 3% range before taxes.

      Age 80+ seniors considering assisted living have two key financial needs, paying their monthly service fees and having some modest discretionary income.  A senior paying a typical assisted living monthly service fee ranging from a low of $3,200 to an average of approximately $3,800 per month must have a total, after-tax qualifying income of approximately $50,000 to $60,000 before incurring significant spend-down of their savings portfolio.  This assumes a spending guideline of 80% of after-tax cash flow disposable income for the monthly service fee and 20% for other discretionary spending. 

      That may sound like a lot of discretionary cash for a senior’s lifestyle in assisted living.  But that pool of money quickly evaporates when you consider the ongoing cost of prescription drugs (notwithstanding the complex Medicare Prescription Drug Program), other personal expenditures and a modest external social life along with the possibility of increased monthly service fees in the future due to annual cost escalation.  There could be a beneficial impact of a medical tax deduction applicable to the assisted living fees.

      Owner/operators consider a 3 percent to 4 percent annual fee increase as “normal and reasonable”.  But remember, your monthly service fee increases essentially represent a very large portion of resident’s total cost of living. To them, these increases reflect a very real inflation rate and a loss of purchasing power.  That’s because they only have a very modest Cost of Living Adjustment (COLA) in their Social Security income.

Potential Issues and Sales Objections

      Many seniors, their families and their financial advisors lack accurate information about the true cost of living in today’s assisted living.  This keeps many income qualified seniors who would greatly benefit from assisted living from leaving their homes – frequently pursuing more expensive alternatives.  Seniors have five major concerns and misconceptions that lead to some classical sales objections; affordability, depressed savings rates, current cost of living concerns, inflation and leaving a financial legacy.

Call to Action

      The senior living industry is in for a serious wake-up call when we combine the recent unfavorable housing and financial market trends with seniors’ age-old financial concerns and classical deal killing misconceptions. 

      Our understanding and sensitivity to the senior consumer financial challenges have not received proper emphasis. In large part, we’ve chosen to stay out of the senior consumer’s personal financial planning. Their financial status has been subordinated to a “don’t ask, don’t tell" psychology.  That’s all changed now.  We must adopt a proactive and credible financial planning strategy for seniors as a major product positioning platform.  It must be one that is prudent and logical, involving more substance than just politically correct rhetoric or fancy sound bites.

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