Facing old age with less as home value falls

Ellen and Ray Bluemel are retired and healthy, and figure their eight grandchildren will help them stay active for many more years. The question is whether their assets, damaged by plummeting real estate values, will last as long as they do.

“I always tell people the good news is that we’re living longer and the bad news is that we’re living longer,” said financial planner Delia Fernandez of Fernandez Financial in Los Alamitos.

Two years ago -- the "$800,000 days,” as Ellen calls them -- the bank not only valued their 1,250-square-foot Tarzana home by that much but also projected that the one-story house would be worth $1 million in a decade.

That got them thinking of the possibilities. The Bluemels talked about selling their home and moving into a secure senior community -- a place where they wouldn’t have to worry about gardening and where they could be around folks their own age.


“My thought was I wanted to go and live in a Leisure World-type place where [Ray, 71] would . . . go and talk with the guys and do whatever guys do, and I would go knit or do whatever ladies do,” Ellen, 69, said.

When the value of their home was soaring, the Bluemels figured they could sell it, spend as much as $300,000 on a house in a gated community and live on the remaining proceeds.

But now, with a one-third drop in the value of their home, their hopes are greatly reduced. They may instead buy a $150,000 condominium or cooperative in the Laguna Woods senior community called Laguna Woods Village, formerly Leisure World, and rely on their modest income for necessities.

Ray Bluemel spent more than 32 years as a gardener for the Los Angeles Community College District. Before she retired in June, Ellen Bluemel held a variety of jobs, including dental assistant, bank customer service representative and special education teacher’s aide at a nearby elementary school.


A combination of Ray’s pension and their two Social Security checks brings in an annual income of $40,781. Their home, which cost $17,900 when they bought it 43 years ago, is their major asset. Their only other savings is about $34,312 from three sources: an individual retirement account, a regular savings account and an annuity. Their savings were hurt by a series of unexpected home repairs and family financial matters in recent years.

They figure they spend about $26,200 a year, though Fernandez suspects the amount is higher because of their modest savings. But they also have paid off the loans on their cars, and they give $260 a month to their Mormon church.

In downsizing, the Bluemels are most worried about their future medical bills, especially if either or both of them should require expensive medical care or in-home nursing care. At their ages, they can’t afford to pay the high monthly premiums for long-term-care insurance.

“There comes a time when you deteriorate, and what do you do?” Ray said.

Longevity is in the genes on both sides, so the couple hope their savings and income can last at least 20 more years.

Putting them further in a corner was their decision two years ago to borrow $62,000 on their home in a costly reverse mortgage, which carries high fees but does not have to be repaid on any schedule. Such loans often are repaid after the borrower dies or decides to sell the house. That seemed like a better risk when the home was worth more.

The funds covered part of the debts they incurred mostly in helping their three children. They lent $24,000 to a daughter to buy a home and spent about $15,000 to buy a car for their son.

Because their original plans hinged on the equity they had expected from the sale of their home, they repaid $10,000 of the reverse mortgage proceeds to recover some of the equity cushion lost in the recession. Given the fees and interest rate on the loan, financial planner Fernandez advised them to use the $10,000 remaining from the loan to pay down the principal.


“I’m so astounded. I’ve never met anyone who actually tried to pay back a reverse mortgage,” Fernandez said. “This is a very practical and diligent couple.”

Fernandez looked at three plans for the couple, depending on their possible need for an assisted-living or a skilled-nursing facility, which could rapidly drain their resources with charges of $3,000 to $6,000 a month for care.

In making her projections, Fernandez assumed that in-facility care costs would rise 6% annually and other costs would go up 3% a year. She also assumed the Bluemels would net $460,000 on the sale of their home and spend $150,000 for a new one -- and that at least one spouse would live well into the 90s. All the following figures are expressed in today’s dollars.

Should one Bluemel need some in-home care by 2019, the planner figures the couple would be able to afford four hours of care at $20 an hour five days a week, increasing to eight hours a day every day of the week by 2025 at a cost of $58,240 a year. If that spouse dies two years later, the surviving spouse would have enough money, through a reverse mortgage, to pay for some housekeeping and medical expenses for 13 more years. Only a modest life insurance policy to help pay burial costs would be left to their children.

Should, instead, one of the Bluemels need to go into a nursing home or a care facility by, say, 2019, that spouse’s life expectancy would be shorter. Fernandez said that 85% of those entering such facilities live 2.8 more years, and she assumed three years in her example. Costs would be higher but shorter in duration. She projects that the surviving spouse would be able to use reverse mortgage proceeds to pay for modest housekeeping and medical expenses and would live until 2036, leaving about $80,000 to the children.

Should both Bluemels need some long-term care at different times, Fernandez figures they could pay for two years of part-time in-home care, one year in a facility for one spouse and two years for the other, assuming one dies in 2018 and the other in 2035. The funds would come mostly from a reverse mortgage. They would leave about $74,000 in cash and a small amount of value in the house to their children.

If either spouse spends more than a few years in a facility, the Bluemels may run out of funds and need state aid. That would mean applying for Medi-Cal, California’s version of Medicaid.

For 2009, Medi-Cal stipulates that a healthy spouse may retain $109,560 in savings, not including equity in a home, with an ailing spouse on Medi-Cal, said James Perry, an estate planning lawyer in Orange. The Medi-Cal spouse must have only $2,000 or less in remaining savings, Perry said.


The healthy individual also may continue receiving $2,739 a month after his or her spouse starts Medi-Cal, he said. If Ray Bluemel, for example, were to need Medi-Cal, Ellen could keep her $807 monthly Social Security income and receive a portion of Ray’s pension up to a total monthly income of $2,739, Perry said. Medi-Cal would use the balance of Ray’s pension for his care.

Fernandez praised the Bluemels for facing the hard planning questions now. Although they’re enjoying a recent $20,000 renovation to their kitchen, she said, the improvement makes it a good time to sell.

“Or,” she said, “you stay at home and become some of those people whose lawns are never mowed” because they can’t do it themselves and can’t afford to hire a gardener.

Ray said that’s not for them.

“The red flags are flashing,” he said. “In a year or two, we gotta go.”



This month’s makeover

Who: Ray and Ellen Bluemel

Income: $40,781 from Social Security and a pension

Goals: Move to a community for seniors. Continue to help children and grandchildren with expenses. Pay for living and medical expenses for at least 20 more years.

Assets: $34,312 in an individual retirement account, a savings account and an annuity. A 1,250-square-foot home worth an estimated $550,000. Two cars paid off.

Debts: Reverse mortgage balance of about $57,000, $1,000 on credit card

Recommendations: Pay back $10,000 now on reverse mortgage. Sell home in one to three years. Use proceeds to buy a $150,000 unit in Laguna Woods Village. Use remaining proceeds to pay for end-of-life expenses. Invest conservatively. Continue to live modestly. Refrain from helping children and grandchildren with further expenses. Go on planned Yellowstone vacation this year.

About the planner: Delia Fernandez is a certified financial planner and owner of Fernandez Financial in Los Alamitos.