A health care real estate investment trust, known as REIT, could be a smart move if you want to capitalize on aging trends by including senior housing, medical and nursing facilities in their retirement portfolios.
“The most promising thing about health care REITs right now is their external growth outlook,” says Omotayo Okusanya, managing director of equity research (REITs) at Mizuho Securities. Dividend yields have held steady across the sector, despite a low interest rate environment, and health care REITs continue to trade at meaningful premiums to net asset values.
Growth hasn’t come as quickly as anticipated in the past but the prognosis for real estate related to health care remains strong.
“The story, for a long time, is that health care REITs would benefit from the giant baby boomer generation transitioning into retirement,” says Daniel Milan, a managing partner of Cornerstone Financial Services in Southfield, Michigan. “That hasn’t really played out as expected in this space, mostly because new construction has outstripped demand.”
Milan says that trend may soon begin to reverse if it hasn’t already, creating a window of opportunity for investors.
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Financial Planning for Cognitive Decline
What is the social security retirement age?
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You can apply for Social Security online at ssa.gov, by calling 1-800-772-1213 or in person at your local Social Security office. You must be at least 61 years and 9 months old to submit an application for retirement or spousal benefits, and payments can start as early as age 62. Your age when you enroll plays a big role in determining your payment amount, so take care to see how much you will receive at various claiming ages.
When can I apply for social security?
You can get a personalized estimate of your future Social Security benefit by creating a My Social Security account at ssa.gov/myaccount and viewing your Social Security statement. Your statement lists how much you are likely to receive in retirement if you continue working at your current salary until your full retirement age, age 62 and age 70.
"If you look at your Social Security statement today, your estimated benefit is based on your previous year's income," says Ross Menke, a certified financial planner and founder of Lyndale Financial in Nashville, Tennessee. "If you do stop working earlier, that will have an impact on what you would be eligible to receive as a Social Security benefit."
The statement also lists how much you will qualify for if you become disabled and what family members might receive if you pass away. Social Security statements are mailed to workers age 60 and older who don't have a My Social Security account.
How much social security will I get?
Most workers pay 6.2% of their earnings into the Social Security system, and employers match this amount. Self-employed workers contribute 12.4% of their paychecks. However, earnings that exceed $137,700 in 2020 are not taxed by Social Security or used to calculate retirement payments. Workers who earn more than $137,700 will see a bump in their paycheck when Social Security taxes stop being withheld.
Your Social Security payments might also be taxed in retirement. If the sum of your adjusted gross income, nontaxable interest and half of your Social Security benefit exceeds $25,000 ($32,000 for couples), federal income tax could be due on part of your Social Security benefit. If these income sources exceed $34,000 ($44,000 for couples), up to 85 percent of your Social Security payments may be taxable. There are also several states that tax Social Security benefits.
What is the social security tax limit?
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Sabra Healthcare (SBRA) invests in more than 430 properties across the U.S. and Canada, including skilled nursing facilities, senior housing and specialty hospitals. The current dividend yield is 8.13%, making it one of the highest-yielding health care REITs in the sector.
Share prices dipped in the fourth quarter of 2019, which could present a buying opportunity for bargain-seeking investors. Overall, Sabra currently has a "hold" rating from Argus Research. Revenues remained consistent between the second and third quarters of 2019, while earnings dipped slightly. But growth prospects over the next five years outstrip many of the top medical REITs in the market.
Ventas
“Most people don’t feel confident talking to their parents about money,” Ms. Wood said. And parents may feel embarrassed or ashamed about asking for help, which can make a discussion even more difficult.
So accept that the conversation will be awkward — but have it anyway.
To avoid misunderstandings, it’s best to begin talking when parents first ask for help, Ms. Wood said. Don’t be shy about requesting details about their finances, she said. “No one should give an open checkbook to a parent, or to anyone.”
Pinpointing the reason for their cash shortage can help identify possible solutions. If it’s a costly medical prescription, you can help identify options like taking a generic drug or using a money-saving mobile app. If your parents are spending a lot of money on entertainment, they may be bored and need some structured activities — perhaps a part-time job or volunteer work, if they’re able. If significant, continuing assistance is necessary, professionals suggest organizing a meeting with siblings and other members of the family to discuss who can contribute, and how much. If you are short on funds, you may be able to offer other kinds of aid, like helping your parent with home maintenance and repairs, or researching possible financial assistance programs. If emotions run high, it may help to have a neutral person — a lawyer or a financial adviser the family trusts — mediate the discussion to make sure the conversation is constructive.
What if I’m reluctant to press my parents for details about their finances?
Many U.S. citizens with a driver's license or state-issued identification card can use their My Social Security account to apply for a replacement Social Security card online. You can also fill out a paper application and mail it in or take it to your local Social Security office.
What other financial options are available to help aging parents?
Most Americans contribute 6.2% of their earnings to the Social Security system, and employers pay a matching amount. Those who are self-employed pay 12.4% of their income into Social Security. Workers who have sufficiently paid into the system can collect retirement benefits beginning at age 62 or older. You may also be eligible to collect benefits if you become disabled, and your family members might qualify for survivor's payments after you pass away.
How does social security work?
If you have a medical condition that significantly limits your ability to work and perform basic activities such as walking or remembering, you might qualify for Social Security disability payments. Be prepared to provide medical records documenting your condition and why it prevents you from working. Social Security disability payments won't start until six months after your disability began. There's also a several-month wait time to process disability applications.
How do I qualify for social security disability?
Social Security beneficiaries are required to sign up for electronic payments. Social Security benefits can be directly deposited into a bank or credit union account or loaded onto a prepaid debit card. The payment dates vary based on your date of birth. If your birthday falls on or before the tenth of the month, you will receive your payment on the second Wednesday of each month. Those born between the 11th and 20th get their payments on the third Wednesday, and people born late in the month get their direct deposits on the fourth Wednesday.
When will I receive my social security check?
Last year, flows into U.S. sustainable funds more than tripled, marking the fourth year of record flows, according to Morningstar. Talking about sustainability “is a way to build better relationships with clients. And it’s material to returns,” says Catherine Banat, managing director of responsible investing at RBC Global Asset Management. One beneficiary will be impact investing strategies—where people seek specific outcomes from their portfolios—many of which are aligned with the U.N. Sustainable Development Goals.
In 2019, according to the Global Impact Investing Network, assets in this market totaled around $500 billion, based on surveys with 1,300 impact investors. That will happen in mutual funds too: According to Morningstar, the largest impact funds include the $4.8 billion TIAA-CREF Social Choice Bond (TSBBX), the $2.4 billion Community Reinvestment Act Qualified Investment (CRAIX), the $1.2 billion Domini Impact International Equity (DOMIX), and the $1.2 billion AB Sustainable Global Thematic (ALTFX).
12. Flows will keep surging
Particularly of people who are great at building computer models and handling large data sets, and who are thick-skinned when dealing with corporate executives and officers. “There’s a global hiring war in ESG right now,” says Manulife’s Chew.
13. Expect more hiring in the sustainability industry...
About half said they had given at least $1,000, and about 20 percent said they had given $5,000 or more. The money was most often paid monthly or weekly for needs like groceries and housing, the survey found.
Earlier research from the Pew Research Center found, similarly, that about a third of adults with parents 65 or older had given them
Parents might consider selling their house and buying a smaller one, renting a more affordable home, or moving in with their children if there’s room, advisers suggest. If they don’t want to do that but have substantial equity in their home, a reverse mortgage — a loan in which you borrow money secured by the house and receive payments from the bank — may be an option. Federal rules require borrowers to be at least 62, and there are limits to the size of the loan. Counseling is required before borrowers can take out the loan; they can risk foreclosure if they don’t make necessary payments for property taxes, insurance and maintenance, and meet other requirements.
The National Council on Aging offers suggestions on money management on its website, including an “economic checkup” tool and another that can help maximize public health, nutrition and housing benefits.
“There’s strong data being provided from some of the major players in this space that indicate starting in 2020 and 2021 that demand will begin to be stronger than supply,” he says.
Investing in a hospital REIT or nursing home REITs could add stability to a portfolio over the long term.
“Health care REITs provide investors with a useful diversification tool with a robust long-term performance that will typically reduce the volatility of a portfolio because of how much returns differ from those of the S&P 500 (.SPX),” says Andrew Latham, managing editor of SuperMoney.
The question for investors: Where to put your money? These medical REIT options could prove the healthiest for generating dividends for retirement.
Sabra Healthcare REIT
Ventas (VTR) features a portfolio of more than 1,200 properties in the U.S., Canada and the United Kingdom. This REIT focuses on investments in senior housing communities, medical office buildings, medical research and innovation centers, inpatient rehabilitation and long-term acute care facilities and health systems.
VTR currently has a "buy" rating from Argus Research but the outlook for this REIT is bearish overall, thanks to lower growth estimates. In terms of dividend yield, retirement investors may appreciate the 5.47% payout Ventas offers.
Welltower
One of the largest health care REITs, Welltower (WELL) invests heavily in health care infrastructure. The REIT’s holdings include senior housing operators, post-acute care providers and outpatient medical facilities in the U.S., Canada and the United Kingdom.
Latham says it’s worth noting that Welltower recently signed a 15-year lease agreement with ProMedica, which happens to be one of the largest health care providers in the U.S. That could bode well for the future if the need for senior health care and housing tracks according to expectations.
WELL currently has a buy recommendation from Argus and pays a dividend yield of 4.12% to investors. A potential downside to factor in is that demand for shares of this medical REIT has pushed share prices well above many of its competitor health care REIT stocks.
National Health Investors
National Health Investors (NHI) is a standout health care REIT for a variety of reasons.
Its portfolio includes a mix of independent living, assisted living and memory care communities, entrance-fee retirement communities, skilled nursing facilities, medical office buildings and specialty hospitals. That’s a mark in its favor for retirement investors, says Okusanya, since having a diversified portfolio across different health care property types is a plus.
National Health Investors also utilizes long-term leases and is more insulated against changes to the government reimbursement landscape for Medicare and Medicaid. The current dividend yield is a robust 4.98%. Like Welltower, NHI is a more expensive buy compared with other nursing home REITs.
The Long-Term Care ETF
While this isn't exactly a REIT stock, the Long-Term Care ETF (OLD) is focused on long-term care. The fund holds some of the top health care REIT options, including Ventas and Welltower as well as Healthpeak Properties (PEAK), another major health care REIT stock.
Though it’s a newer health care ETF option, this nondiversified fund has proven itself as a solid performance. Year-to-date, OLD has delivered a 24.63% average annualized return, with an expense ratio of 0.35%.
Know the risks of health care REITs
Like other REIT sectors, health care isn’t foolproof and retirement investors should know what they’re getting into.
Latham says health care REITs are best used as one part of a well-diversified portfolio since short-term performance can be highly volatile. Investing in medical REITs also carries certain tax implications to be mindful of.
Since REITs are treated as pass-through entities, REIT investors can avoid the double taxation associated with corporate profits. Latham says that it can be problematic. For investors in higher tax brackets, it might make more sense to hold health care REITs in a tax-deferred account. OLD would be an exception since ETFs, as a rule, are generally more tax-efficient than other investments due to their lower turnover rate.
Interest rate changes can also pose a threat to the well-being of nursing home REITs and medical REITs.
“A rising rate environment would be negative for the group as higher cost of capital impedes acquisitions and also creates an opportunity for yield in other asset classes,” Okusanya says.
Lastly, there’s the question of finding a balance between supply and demand. If the predictions for senior housing needs fall short, then health care REITs may have a bumpier outlook for the near future, Milan says. All of that should be factored in when banking on medical REITs to secure retirement income.