Moving to a Continuing Care Retirement Community. Are they as good as they seem?
By Ric Edelman
Health care is a major concern for seniors. Many worry that a sudden change in health might lead to complicated decisions about where to live, what’s affordable and whether to sell the house — and seniors might face these suddenly and under tight deadlines.
To avoid this situation, many retirees move to continuing care retirement communities while they are still young and in relatively good health. CCRCs offer independent living with a variety of amenities — including assisted-living and nursing care should those services become necessary. If you become a resident and your health care needs change, you can move to an area within the community that provides the level of care you need; your spouse can continue living at home while remaining nearby.
It gets better. Many CCRCs seem more like four-star resorts than retirement communities. Units range from one- and two-bedroom condos to single-family homes, often featuring hardwood floors, granite countertops and stainless steel appliances. Communities often have restaurants, fitness center with personal trainers, pool and hot tub, club house with billiards, game room, theater, ballroom, meeting rooms, library, educational classes, day spa, salon and barber shop, convenience store, pharmacy and putting green (and sometimes a golf course). And because people move into CCRCs while they are still in good health, these communities offer a vibrant social life for active adults. Now this is living!
But wait! There’s more! Many communities offer on-site maintenance, landscaping and transportation services. Many even teach you how to downsize (such as selling your furniture and belongings on eBay) to ease your transition. And if you act now, you might be able to secure tantalizing offers provided by CCRCs in response to today’s soft real estate market! Seriously, though, the location, size and amenities of the home and community affect the price, as with any real estate purchase. While the services and costs vary, one thing is true everywhere: They aren’t cheap. CCRCs require residents to pay substantial entrance fees, which can range from several hundred thousand dollars to $1 million or even more. This fee is sometimes refundable if you move away or die, but not always — be sure to ask.
After paying the up-front fee, you must then pay a monthly fee. Each CCRC handles this differently. A facility might charge $3,000 a month for residents living independently but charge dramatically more if assisted living or nursing care is needed. Others charge a monthly fee that remains fixed regardless of the care a resident needs. Although these communities can be very appealing, keep in mind that most are fairly new. Will the community be as attractive in 10 or 15 years as it is now? Maintaining quality requires capital, and that means the developer of the community must be in strong financial condition. (See the questions you need to ask below.) The rates charged by each CCRC are based on certain assumptions, one of the most important of which is occupancy: If there aren’t enough people living in the community, costs will have to be borne by fewer residents. And what if some residents experience financial problems of their own and become unable to pay their bills? It’s easy to imagine scenarios that create financial problems for the community’s developer — so make sure you select a community whose developer is in excellent financial condition.
But even today’s strongest companies might encounter problems in years to come. What happens to you and your investment if the CCRC experiences financial difficulties or even goes out of business? Know your rights and protections if the quality of services declines or ends.
Another concern is the monthly cost. You should expect it to rise over time. Not only will inflation cause operating costs to rise, it’s possible that the CCRC might be underestimating the number of residents who will require assisted living or long-term care services, or the cost of providing those services to those who need them. Any of these scenarios could cause your monthly fee to rise significantly over time, so talk with your financial planner to make sure you’ll be able to pay the monthly fee should it rise.
Also determine your rights to sell your new residence if you decide to move. Are there restrictions on your ability to sell or set your own price? Would the CCRC assess any fees or limitations? What happens to the entrance fee you had paid?
CCRCs are appealing, but it’s a major decision, so move slowly. Visit several, and visit each multiple times on different days of the week, different times of the day and different months of the year.
Before you sign any papers, talk with your planner. You probably have a house to sell as part of the process, so let us help you make sure that you’ve considered all the implications for your personal finances before you act.
From the December 2009 Inside Personal Finance.
It's Not the Beatles, But It Is a Mania
A lot of people seem to have really good friends whom they expect to help pay for their long-term care services some day.