Private Financing of Long Term Care: Income, Savings and Reverse Mortgages.

Summary To what extent would elderly Europeans be able to finance the expenses related to their loss of autonomy from their income and wealth alone, in the absence of informal assistance and public insurance? To answer this question, we develop a microsimulation model and estimate, using data from the SHARE (Survey of Health, Ageing and Retirement in Europe) survey, the dependency trajectories of people aged 65 and over in nine European countries. We pay particular attention to the potential role of lifetime mortgages as a tool for extracting value from real estate. According to the simulations, 57% of people aged 65 and over will face a loss of independence. For them, the average duration of dependency will be 4.4 years. Among the dependent people without a spouse, 6% would be able to cover their expenses for loss of autonomy thanks to their income alone, a figure that rises to 22% if they mobilize all of their assets, except their home. This proportion would double to 49% if these people took out a life mortgage on their main residence. However, a quarter of them would only be able to finance less than 10% of their expenses for loss of autonomy.