Financial Intelligence Newsletter for Q2 2025
In this publication of Financial Intelligence, I have included an article dedicated to Retirement Community and Assisted Living Planning. There are so many options, layers and considerations when it comes to deciding to move into these communities, we thought it would be helpful to review the topic and provide as much guidance as we can. Much will depend on a combination of what is preferred and what is needed, and a holistic approach is recommended so a prudent decision can be made.
I also have added an article obtained via the Broadridge Advisor Solutions site on the dilemma of whether to pay off a mortgage to remove the debt from the balance sheet and free up cash flow, or to invest this extra cash instead to increase liquidity on the balance sheet with the goal of receiving a better after-tax return in the markets. Evaluating the opportunity cost of both approaches and the number of tangible and intangible factors at work is critical. There is not necessarily a right or wrong answer here, but weighing all considerations is important.
I hope you find the information provided helpful. Let us know how we can assist you.
Retirement Community and Assisted Living Planning
Choosing between retirement community and assisted living options can be an intimidating ordeal. Because these facilities cater to diverse needs, preferences, and budgets, it is important to review these variables collectively to better understand the landscape when examining such a move. Although these communities and facilities can vary significantly in type and cost, the general concept for all of them is the same: provide senior living, security, amenities, healthcare assistance and needs, and a sense of community to older adults who are in the same stage of life. Communities and facilities focus on supporting privacy, dignity, and independence, promoting a resident’s ability to interact and socialize with people both in and out of the facilities, to participate in residential councils and committees, to continue using personal property and possessions, and to manage their own finances. There is the general objective of maintaining autonomy for as long as possible, so long as the safety and security of the occupants are not compromised.
Types. With robust optionality, what makes sense when selecting a community and/or facility comes down to some combination of what is preferred and what is ultimately needed. A comprehensive array of amenities and health care services may be offered, depending on the selected option, ranging from support with essential activities of daily living to specialized care for individuals with memory-related diseases and disorders. While many assisted living facilities provide a transition into a skilled nursing care or memory unit should the need arise, some do not – an important distinction to consider in advance. Here is a general list of the choices available for independent retirement and assisted living facilities:
- Independent Living – these communities offer a maintenance-free lifestyle with private apartments or suites with shared living areas, social functions and recreational activities, meal preparation and housekeeping services, and often amenities like dining halls, gyms, club houses, and transportation services.
- Assisted Living – these facilities provide housing and assistance with daily activities like bathing, dressing, and medication management. Staff can be available 24/7 and may include on-site healthcare coordination and scheduled care plans.
- Memory Care – these are specialized facilities designed to support residents with memory loss, often incorporating secure environments and dementia-friendly activities. These units will have specialized staff training and 24-hour supervision.
- Skilled Nursing Facilities – this arrangement is for an individual with complex medical needs who requires ongoing nursing care and rehabilitation. Licensed nurses, medical staff, and rehab services will be present.
- Continuing Care Retirement Communities (CCRCs) – these communities offer a range of care options, from independent living to skilled nursing, all within one community. These communities provide a tiered level of care, luxury amenities, and long-term contracts.
- Other Options – includes residential care facilities, board and care homes, adult day care (ADC), and adult foster care homes.
In-home care is a flexible alternative for those who wish to receive care within the comfort of their home, allowing seniors the opportunity to choose and get to know the person who will be providing the care. Most in-home care provider plans can also include a combination of non-medical and skilled health care services, providing some flexibility. Skilled health care services can be tailored for individuals with specific conditions such as Alzheimer’s or dementia, offering memory care and behavioral support. Non-medical care services can include everything from personal care, supervision and companionship, to assistance with regular housekeeping activities, such as laundry, cleaning, and meal preparation. Assistance with transportation, shopping, and running errands provides additional optionality. But unlike many assisted living facilities, in-home care options do not provide a guaranteed path to a skilled nursing facility, if the need should arise.
Affordability. Unless cost is of no concern, assessing the affordability of the various options previously discussed will be a good first step. For basic retirement or independent community living in Colorado, the median monthly cost is approximately $3100 per month.
The average cost of an assisted living facility in Colorado is much higher, estimated to be $6053 per month, per the Genworth’s Cost of Care analysis for 2025. Alzheimer’s or memory care communities within assisted living facilities can have fees that are 20% to 30% higher than traditional assisted living. Fees and costs are often itemized depending on the specific retirement community chosen or assistance needed to help clarify the differences in cost. Some places require an initial deposit that can range from $25,000 to north of $1,000,000, with a percentage of the deposit returned to the individual or estate, depending on the facility and specific contractual arrangements.
The hourly rates for in-home care in Colorado can range from $22.00 to $29.00 per hour in 2025 per https://elder-answers.com/how-does-in-home-care-cost-in-2025/. Depending on when care is needed, the skill level of the care required, and the number of hours provided, in-home care can be a more affordable option. But it can also result in an even more expensive choice if a large number of hours per day are required to meet the senior’s needs, and the individual receiving care is still paying for all household expenses, including food, mortgage, utilities, taxes, and other budgetary costs. Full-time care (40 hours/week) can run between $5,000 to $6,387 per month.
See https://www.aplaceformom.com/caregiver-resources
There are tradeoffs to consider, but assisted living facilities can be much more affordable when full-time care is required.
Financial Planning. Understanding your overall budget, what is needed from a cost perspective, and what income flows you have coming in, will help determine how much, if any, will be needed from your balance sheet resources to fund the possibilities discussed in detail above. Do you have a pension?
Is there an annuity? Are you currently taking required minimum distributions (RMDs), and how much are these per year? Do you have regular interest and dividend income coming in from investments? Do you have business interests that continually pay out? How much do you receive in social security, or how much will it be when you reach full retirement age, and is it worth waiting until 70 to increase the payout? Understanding your cash flow is critical to understanding the affordability of retirement communities and assisted living facilities.
If assets on your balance sheet are needed to pay for a senior living option, portfolio investments and savings are the preferred assets to access, unless long-term care insurance is available to help fund the expense (more on this later). However, a full balance sheet review is essential to understand what resources could be utilized, and in what order. For example, if you have cash or taxable accounts (brokerage assets), you typically will want to pull from these accounts first to minimize the tax impact in funding these ongoing costs. Alternatively, accessing tax-deferred retirement assets (outside of a required minimum distribution) should likely be a last resort because these distributions are subject to ordinary income tax rates. If you have a Roth IRA, this might be an option as well considering the tax-free nature of the distributions, although it may depend on your tax bracket and other considerations and objectives.
Making a decision regarding what to do with your house is also important. If you are moving to assisted living full-time, you may not have a choice regarding your home if there is a shortfall in the amount needed to fund a retirement community downpayment. You may need to sell, and it might make sense to sell, if the move will be deemed permanent, especially if there are mortgage payments, HOA dues, property taxes and/or ongoing utility payments that would be costly to keep paying unless you lived in your home full-time. After a comprehensive financial plan is completed, it can be determined if there is any optionality to keep your home, and whether it would be prudent to do so.
One benefit of keeping your home is the step-up in basis the asset will receive when you pass away. This is the process that allows the adjusted basis (net cost of an asset after adjusting the various tax-related items) to equal the date of death value, so that when your executor or heirs move to sell the asset after you pass, there will be little to no capital gains tax associated with the sale. This can result in a considerable amount of tax savings for your estate and heirs, especially if you have owned the house for decades. But if the financial plan has determined there will not be enough liquidity on the balance sheet to fund the cost of the community or facility, and you are determined to keep the property, perhaps using a reverse mortgage to access equity from the property to cover the cost might be an option.
A reverse mortgage is a loan that allows homeowners age 62 and older to borrow money against their equity without making monthly payments. The borrower receives payments from the lender, and the loan balance grows over time with interest. The loan is typically repaid when the borrower dies, no longer lives in the home, or sells it. If the property is mortgage-free, and accessing equity is necessary, a reverse mortgage would allow you to maintain ownership in the property, access the equity needed to pay for the community or facility, and preserve the step-up in basis.
Sometimes long-term care necessitates a move to an assisted living, a skilled nursing or a memory care facility, and the optionality previously discussed is no longer part of the equation. When we put together financial plans here at Peak Asset Management, we will use your actual projected expenses should these long-term care costs be available. If we are stress testing a plan by modeling in a long-term care event in the future, we currently budget an average of $120,000 per year at a 5.5% inflationary rate for 3 to 5 years. This allows us to assess whether the financial plan could absorb such an event, and if not, what our options are to make sure you get the care you need. From a tax planning perspective, some features of assisted living may be considered a qualified medical expense and qualify for a tax deduction, if expenses are over 7.5% of AGI in 2025. We recommend consulting with your CPA on whether certain expenses qualify for that deduction.
Long Term Care Insurance. If you currently have long-term care insurance or have the ability to qualify for such a product, this could be another means to supplement the cost. Keep in mind that if you are simply moving into a retirement community and have little by way of healthcare needs, you will be unable to utilize your long-term care policy to pay for it. Typically, long term care insurance will pay out when an individual is unable to perform at least 2 of the 6 Activities of Daily Living (ADL). These ADLs include eating, bathing, dressing, mobility, continence, and toileting. Thus, if you are transitioning within a retirement community from complete independence to needing more assistance, it is worth reviewing to see whether your long-term care insurance policy could assist with the cost, and whether it makes sense from a financial planning perspective to activate the policy.
Long-term care policies typically can cover up to 3 to 5 years and usually have a max payout per year. Thus, with these limitations in mind, the timing of putting in a claim can be critically important, especially if several years of more expensive care will be needed in the future. These policies can also be of the indemnity or reimbursement variety. An indemnity policy will simply pay out a fixed amount per year once the insured qualifies for the insurance benefit. A reimbursement policy requires receipts for costs to be sent to the insurance company for review and reimbursement. Indemnity policies tend to cost more, but they are the preferred policy.
With over 50% of long-term care paid out of pocket, it is wise to look at long-term care insurance before assisted living or nursing home facilities are needed, as the cost of long-term care insurance can rise dramatically with increasing age and diminishing health. Premiums for individuals aged 65 are 8 to 10 percent higher than premiums for individuals aged 64. Hybrid insurance policies, like whole life policies with long-term care riders, are also potential options to help fund long-term care needs. These policies tend to be more expensive than the traditional long-term care policies but may provide flexibility for financial and estate planning purposes.
Medicare and Medicaid. Medicare will not cover basic assisted living expenses, but Medicare Part A will cover the first 100 days of skilled nursing facility care if certain criteria are met. Medicare will not cover anything beyond 100 days. Medicaid will cover the cost of some personal care assistance, as well as the cost of nursing home care, if one qualifies. But qualification is based on very low income and asset thresholds. There is also a Medicaid waiver program allowing many elderly individuals to remain living in their homes and to receive care. However, there are participation caps for this program making it a difficult opportunity to access.
The analysis necessary when it comes to the options available and the affordability regarding retirement communities and assisted living facilities should be holistic and comprehensive in nature. Preference and necessity, as well as your overall financial planning objectives, will be important in guiding you in making the right choice when it comes to assisted living. Peak Asset Management helps clients and prospects make these types of decisions regularly through our experienced financial planning team. We review the choices in front of you, discuss your cash flow, your detailed balance sheet, ongoing tax planning and how decisions you make now could affect your estate and legacy planning. We would be happy to discuss and model out a plan that will help you make the appropriate decision. Feel free to reach out.
Should You Pay Off Your Mortgage or Invest?
Owning a home outright is a dream that many Americans share. Having a mortgage can be a huge burden, and paying it off may be the first item on your financial to-do list. But competing with the desire to own your home free and clear is your need to invest for retirement, your child’s college education, or some other goal. Putting extra cash toward one of these goals may mean sacrificing another. So how do you choose?
Evaluating the opportunity cost. Deciding between prepaying your mortgage and investing your extra cash isn’t easy, because each option has advantages and disadvantages. But you can start by weighing what you’ll gain financially by choosing one option against what you’ll give up. In economic terms, this is known as evaluating the opportunity cost.
Here’s an example. Let’s assume that you have a $300,000 balance and 20 years remaining on your 30-year mortgage, and you’re paying 6.25% interest. If you were to put an extra $400 toward your mortgage each month, you would save approximately $62,000 in interest, and pay off your loan almost 6 years early.
By making extra payments and saving all of that interest, you’ll clearly be gaining a lot of financial ground. But before you opt to prepay your mortgage, you still have to consider what you might be giving up by doing so–the opportunity to potentially profit even more from investing.
To determine if you would come out ahead if you invested your extra cash, start by looking at the after-tax rate of return you can expect from prepaying your mortgage. If you plan on itemizing deductions on your tax returns, this is generally less than the interest rate you’re paying on your mortgage, once you take into account any tax deduction you receive for mortgage interest. Once you’ve calculated that figure, compare it to the after-tax return you could receive by investing your extra cash. Could you receive a higher after-tax rate of return if you invested your money instead of prepaying your mortgage?
Keep in mind that the rate of return you’ll receive is directly related to the investments you choose. All investing involves risk, including the possible loss of principal, and there can be no assurance that any investment strategy will be successful. Investments with the potential for higher returns may expose you to more risk, so take this into account when making your decision.
Other points to consider. While evaluating the opportunity cost is important, you’ll also need to weigh many other factors. The following list of questions may help you decide which option is best for you.
- What’s your mortgage interest rate? The lower the rate on your mortgage, the greater the potential to receive a better return through investing.
- Does your mortgage have a prepayment penalty? Most mortgages don’t, but check before making extra payments.
- How long do you plan to stay in your home? The main benefit of prepaying your mortgage is the amount of interest you save over the long term; if you plan to move soon, there’s less value in putting more money toward your mortgage.
- Will you have the discipline to invest your extra cash rather than spend it? If not, you might be better off making extra mortgage payments.
- Do you have an emergency account to cover unexpected expenses? It doesn’t make sense to make extra mortgage payments now if you’ll be forced to borrow money at a higher interest rate later. And keep in mind that if your financial circumstances change–if you lose your job or suffer a disability, for example–you may have more trouble borrowing against your home equity.
- How comfortable are you with debt? If you worry endlessly about it, give the emotional benefits of paying off your mortgage extra consideration.
- Are you saddled with high balances on credit cards or personal loans? If so, it’s often better to pay off those debts first. The interest rate on consumer debt isn’t tax deductible, and is often far higher than either your mortgage interest rate or the rate of return you’re likely to receive on your investments.
Are you currently paying mortgage insurance? If you are, putting extra toward your mortgage until you’ve gained at least 20% equity in your home may make sense.
- How will prepaying your mortgage affect your overall tax situation? For example, prepaying your mortgage (thus reducing your mortgage interest) could affect your ability to itemize deductions (this is especially true in the early years of your mortgage, when you’re likely to be paying more in interest). It’s important to note that due to recent tax law changes, specifically the increase in the standard deduction, many individuals aren’t itemizing their taxes and are no longer taking advantage of the mortgage interest deduction.
- Have you saved enough for retirement? If you haven’t, consider contributing the maximum allowable each year to tax-advantaged retirement accounts before prepaying your mortgage. This is especially important if you are receiving a generous employer match. For example, if you save 6% of your income, an employer match of 50% of what you contribute (i.e., 3% of your income) could potentially add thousands of extra dollars to your retirement account each year. Prepaying your mortgage may not be the savviest financial move if it means forgoing that match or shortchanging your retirement fund.
- How much time do you have before you reach retirement or until your children go off to college? The longer your timeframe, the more time you have to potentially grow your money by investing. Alternatively, if paying off your mortgage before reaching a financial goal will make you feel much more secure, factor that into your decision.
The middle ground. If you need to invest for an important goal, but you also want the satisfaction of paying down your mortgage, there’s no reason you can’t do both. It’s as simple as allocating part of your available cash toward one goal, and putting the rest toward the other. Even small adjustments can make a difference. For example, you could potentially shave years off your mortgage by consistently making biweekly, instead of monthly, mortgage payments, or by putting any year-end bonuses or tax refunds toward your mortgage principal.
And remember, no matter what you decide now, you can always reprioritize your goals later to keep up with changes to your circumstances, market conditions, and interest rates.
This article is being reproduced and shared via Broadridge Advisor Resources through the American Institute of Certified Public Accountants (AICPA).
Jason Foster, JD, AEP®
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