Continuing Care Retirement Communities: What You Should Know about the Costs
Continuing care retirement communities (CCRCs) have become a popular senior living alternative. Residents can enjoy independent living and, when the need arises, take advantage of advanced care options including assisted living, memory care and skilled nursing — typically all on one campus. Beyond that, CCRCs offer an array of amenities, including fine dining, programming, health and wellness opportunities, home maintenance, and more.
CCRCs provide a unique form of senior living, and the financial considerations of living in one are equally unique. So, before you or your parents sign a CCRC residency contract, here are some of the financial issues that need to be investigated.
Entrance and monthly fees
A CCRC — also known as a “life plan community” — generally requires an entrance fee of between $100,000 and $1 million. The average fee is about $300,000. This is money the community uses as a prepayment for your care and living arrangements, as well as to fund operating costs.
Entrance fees may or may not be refundable when the resident moves out or dies. And some communities offer deals that vary based on whether the resident chooses a 100% refund or a lesser option, such as 70% or 80% of the original fee.
In addition to entrance fees, residents pay a monthly fee, which like a rent payment is subject to contractually allowable increases over time. The monthly fee within the community can vary based on factors such as the type and size of the residential unit, the level of care provided, as well as the contract type, which we discuss below.
Finally, your monthly bill can include add-on fees for things like extra meals and optional housekeeping or other services.
Three types of residency contracts
The ongoing cost of living in a CCRC will also be impacted by the type of contract you choose. CCRCs offer options that include:
▪ Life care or extended contracts. These provide for unlimited amenities and assisted living, medical and nursing care without additional charges. As such, life care contracts generally come with the highest entrance fees and monthly fees ranging from $2,500 to $5,000.
▪ Modified contracts. Medical services are covered up to a specified level, beyond which the resident must pay additional for services. Entrance fees are lower than for life care contracts and monthly fees tend to range from $1,500 to $2,500.
▪ Pay-as-you-go contracts. This option offers the lowest entrance fees and, in many cases, the lowest monthly fees, but residents must pay market rates for medical services if they use assisted living or skilled nursing care.
Finding the funding
CCRC residents often pay their entrance fees from some combination of the following:
▪ Proceeds from the sale of their home
▪ Investment income
However, there are other sources of funds that can be used to pay for initial and ongoing expenses. These include:
▪ Bridge financing. There are loans that can bridge the gap between moving into the CCRC and selling your home.
▪ Long-term care insurance. You generally won’t be able to use this coverage to pay for independent living, but some policies cover assisted living and other advanced care at a CCRC.
While Medicare covers services a CCRC resident might need such as physician visits and hospital stays, it usually doesn’t cover long-term nursing care in one of these communities.
If there’s a chance you might have difficulty paying ongoing CCRC expenses someday, find out if the community you are considering maintains benevolence funds. As part of their mission, some nonprofit CCRCs can make such funds available to residents who outlive their financial resources — ensuring they can stay for the rest of their lives.
Is the CCRC financially stable?
One possibility many seniors fail to consider is that a CCRC could one day experience financial difficulties. What happens if it goes bankrupt or must sell to another company?
How might that impact your monthly fees and service costs? And, maybe most importantly, what happens to your refundable entrance fee? Many residents look at entrance fee refunds as legacy money for their children and other heirs, so it’s important to understand if the refund is contractually protected in the case of a bankruptcy or sale.
Another way to protect yourself is to research the financial health of any CCRC you are considering by asking to see their audited financial statements.
Consult with your advisors
Moving to a CCRC is a major financial commitment and CCRC finance can be complicated. For that reason, seniors should review the costs and risks with a knowledgeable financial advisor.
Additionally, it’s important to review tax ramifications of CCRC living with your accountant. Residents of entry-fee retirement communities may be able to deduct a portion of that entry fee, and possibly a portion of their monthly fees, from their taxes as a prepaid medical expense.
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