Cost of In-Home Caregiving Too Expensive for Retirees, Even With Added Retirement Income

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

Updated on Tuesday, May 11, 2021

Many older adults aim to age in place, meaning they would stay in their homes rather than move to smaller houses, assisted living facilities or elsewhere.

Home health and personal care aides might help some older adults achieve this goal, but that in-home care comes at a cost — a price that’s too high for many retirees, particularly if Social Security is their only income source.

MagnifyMoney researchers looked at the 100 largest U.S. metros to determine the percentage of income — both Social Security alone and combined Social Security and retirement — required to pay for part-time and full-time in-home care. For retirees, the numbers are less than encouraging.

Key findings

  • The cost of in-home caregiving can have a major impact on retirees’ budgets. In 83 of the 100 largest U.S. metros, households would have to spend at least a quarter of their yearly Social Security benefits and retirement income to have help 20 hours a week.
  • Hiring a part-time home health and personal care aide takes up a bigger chunk of retirees’ incomes in the Northeast. Of the 10 metros where the cost of part-time care takes up the largest percentage of Social Security benefits and retirement income, six are in the Northeast.
  • Americans without private retirement savings or income are in even worse shape. Part-time care would require 92.4% of Social Security benefits, on average, in Springfield, Mass. — highest on the list.
  • Retirees who need full-time in-home caregiving but don’t have retirement savings require substantial additional funding to cover costs. The cost of full-time in-home caregiving exceeds 100% of Social Security benefits in each of the 100 metros.

Aging in place and the impact of in-home caregiving on retirees’ budgets

The vast majority of Americans prefer to stay in their homes as they get older. According to a 2018 AARP survey, 76% of adults 50 and older want to stay in their homes as they age — and that was before the COVID-19 pandemic rocked the world.

What can make aging in place more realistic for many is the help of a home health and personal care aide. The feasibility of paying for such services, however, is where many come up short.

MagnifyMoney researchers found that retirees in 83 of the 100 largest U.S. metros would have to spend at least one-fourth of their combined retirement and Social Security income to cover the cost of 20 hours of in-home care.

That’s a big chunk of a budget that also has to account for other expenses, from housing and food to additional health care costs — and that’s for just 20 hours of care. And as more help is needed, the cost of in-home care becomes even more out of reach without additional financial assistance (more on that to come).

Hiring a part-time in-home caregiver takes up more of retirees’ income in Northeast

Like most things, the cost of in-home care varies depending on where you live. In general, it tends to require a bigger chunk of retirees’ income in the Northeast. Of the 10 metros where part-time care takes up the largest percentage of Social Security and retirement income, six are in the Northeast.

It’s out west in Washington — Spokane, to be exact — however, where it’s the most costly relative to income. There, the cost of part-time in-home care runs $16,068 a year, on average, while average annual combined Social Security and retirement incomes are $44,772, meaning that part-time care takes up an average of 35.9% of retirees’ income.

While consumers along the U.S. coasts are generally used to costs being higher, some metros in more inland states are highlighted here. Metros in Washington, Massachusetts, Rhode Island and New York make up most of the 10 states with the highest costs relative to income, but Louisville, Ky., takes eighth place, and Des Moines, Iowa, is tied for ninth.

On the opposite end of the list, Austin, Texas, and Virginia Beach, Va., are the metros where the lowest percentage of Social Security benefits and retirement income must be paid for part-time in-home care. The cost takes up just under 22% of combined retiree income in both areas — about 14 percentage points different from Spokane. All 10 metros with the lowest costs are in Southern areas or states — outside of Texas and Virginia, that includes Louisiana, Florida and the District of Columbia.

Part-time in-home care in the 10 most costly metros averages $15,758, compared with $11,473 among the 10 least expensive metros. Meanwhile, the average income in the 10 most costly metros is $45,883, versus $50,580 in the 10 least costly metros.

Relying solely on Social Security? Part-time in-home caregiving takes up at least 50%, on average, of retirees’ income

For those whose only source of retirement income is Social Security, in-home care becomes even more unaffordable — and that’s a significant portion of the population. In fact, 21% of married couples and around 45% of unmarried people 65 and older who receive benefits rely on Social Security benefits for at least 90% of their income.

Considering that the highest average annual Social Security income is $22,987 (in Cape Coral, Fla.), that can make the cost of in-home care prohibitive.

In Springfield, Mass., the cost of part-time in-home care takes up 92.4% of one’s Social Security income, on average — highest on the list. Even at the bottom of the list, the cost still takes up 53.2% of income, on average, in Houston.

In general, the same metros appear near the top or bottom when looking at the portion of income required to pay for in-home care, whether researchers look at those relying on Social Security benefits alone or those with combined benefits. However, the numbers show how much more challenging — impossible really — it is for those who rely solely on Social Security.

Using Springfield, Mass., as the example, part-time home care takes up 35.8% of income, on average, for those with Social Security and additional retirement income and 92.4% of income, on average, for those who rely solely on Social Security.

Cost of full-time in-home caregiving exceeds retirees’ income in each metro — and it’s not close in many

For those relying on Social Security alone, self-paying for full-time in-home care is pretty much impossible. In each of the 100 metros examined, the cost exceeds 100% of their income — not to mention there’s nothing left to cover the cost of food, housing and other expenses.

In some metros, the cost is close to 200% of one’s income. To highlight Springfield, Mass., again, the cost of full-time, in-home care runs 184.7% of the average Social Security income. In other metros, the proportion required is drastically less — such as in Houston, where the cost equals 106.4% of the average Social Security income — but that still doesn’t make it affordable.

Most expensive states in which to spend your retirement years

Location, location, location: Where you choose to retire affects various other monthly costs, such as food, transportation and housing. So, while looking solely at the cost of in-home care versus income provides good insight, it can’t provide a full view of what it takes to afford in-home care, since these other costs must be factored in, too.

In a recent MagnifyMoney study, researchers looked at the most expensive states in which to spend your retirement years. While it’s a bit different since it looked at states rather than metros, it does provide a broader look at how affordable in-home care in your area may (or may not) be.

For example, researchers found that Arkansas is the cheapest state in which to spend your retirement years. The combined Social Security benefits and retirement income for Little Rock (the capital of Arkansas) is $43,018. If part-time, in-home caregiving costs $11,991 in the metro, and housing, health care and other living expenses run $29,736 (per the previous study), well … you only have about $1,300 to pay for any other costs across the year — and that’s in the cheapest state.

Financial assistance for in-home caregiving

Here are some other ways that may help pay for some in-home care.

Long-term care insurance

There are several insurance options that retirees can utilize to help pay for in-home care, including Medicare (more below). However, older adults will likely only be covered for medically necessary services and not for things such as meal prep, bathing assistance or housekeeping that you could receive from a personal aide.

If longer coverage is required beyond what Medicare provides, long-term care insurance is the best option, says Sterling Price, senior research analyst for ValuePenguin. This can be purchased from private companies and may cover the cost of in-home care, nursing home care and assisted living.

“The earlier, the better is a good general tip when looking at these coverages,” Price says. “With something like long-term care insurance, it can be advantageous to plan ahead and purchase a policy when you are in your 50s or 60s when you are healthy. This will allow you to get lower premiums and potentially not be denied coverage.”

Medicare

In some cases, older adults can use Medicare for in-home care coverage. Medicare Part A (hospital insurance) and Part B (health insurance) will cover almost all in-home care services ordered by a physician, though the federal program doesn’t pay for 24-hour-a-day home care.

Retirees should be aware that the programs will only cover medically necessary services. “Knowing the distinction is crucially important before considering in-home care,” says Price. “Otherwise, you may end up being given a bill that you will have to pay out of pocket.”

Medigap supplemental coverage can be a good option for medically necessary care in the short term.

Investment options

Investing money as early as possible can help you build funds that could be used if in-home care is necessary for you or a loved one. A financial advisor can help you map out a plan for your unique circumstances to set and achieve goals and provide some security for the future.

One specific investment Price suggests considering for coverage of in-home care is life insurance. According to Price, a life insurance policy can be used to pay for in-home care by taking a loan from the policy’s cash value or surrendering the life insurance policy altogether.

Furthermore, some life insurance plans have accelerated death benefits, which allow a terminally ill policyholder to get cash advances from the death benefit of the policy. These cash advances can then be used for various expenses, such as in-home care or hospice care.

Government assistance

While it’s not an option yet, the White House administration’s infrastructure bill could provide older adults with more choices if it becomes law.

The $2.3 trillion plan includes $400 billion for home and community-based medical care. It’s far from a done deal — opponents are balking at the cost — but it’s something to watch going forward.

Methodology

MagnifyMoney analysts used average hourly wages for home health and personal care workers from the Bureau of Labor Statistics (as of May 2020) in the 100 largest U.S. metropolitan statistical areas (MSAs), or metros, to estimate the average cost of part-time and full-time in-home care.

Part time was defined as 20 hours a week for 52 weeks a year, while full time was considered 40 hours a week for 52 weeks a year. Costs associated with payroll taxes, benefits or agency fees weren’t estimated.

Household incomes were derived from the U.S. Census Bureau’s American Community Survey (2019 five-year estimates).

The “Find a Financial Advisor” links contained in this article will direct you to webpages devoted to MagnifyMoney Advisor (“MMA”). After completing a brief questionnaire, you will be matched with certain financial advisers who participate in MMA’s referral program, which may or may not include the investment advisers discussed.