In my last article, I talked about making the decision to move to a Continuing Care Retirement Community (CCRC). This article covers the financial aspects of this move. There are several types of CCRCs with various charges involved, and you need to know what they are and what questions to ask.
What are the different types of CCRCs?
Most CCRCs are owned and operated by not-for-profit organizations. The different types include (A) Extensive or Full life care, (B) Modified life care (C) Fee for Service and (D) Rental. Since they are more comprehensive, Type A contracts tend to have higher entry fees than others.
What does it cost to move into a residence in a CCRC?
When you move to a CCRC, you are not making a real estate purchase, but an agreement with the CCRC to provide service and a place to live for the rest of your life. You pay an entrance fee and a monthly fee, which may be tax deductible. Check with the CCRC to see what amount qualified as being deductible in the past couple of years.
Most CCRCs base the entrance fee on the square footage of the house or apartment you plan to occupy, and whether one or two people will occupy it. In some cases, you are buying an apartment and your heirs can sell it at the market price. Another option is that your heirs would be guaranteed to receive a certain percentage of the price you paid (90% for example), regardless of the current value when you die.
A third option involves buying a lifetime interest. In this instance, you or your heirs would receive a percentage of what you paid on a declining basis for a certain period. For instance, in our CCRC, if we left after two years, we would be entitled to a 52% refund of our entrance fee (it declines 2% monthly). After four years and two months if we left or died, we would receive no refund. Obviously, if you choose this option, you must be financially able and willing to have this part of your estate disappear.
What are the ongoing fees?
CCRCs offer a tiered approach to the aging process, accommodating residents’ needs as they age. Health services, meals, personal care, housekeeping, transportation, emergency help, and a host of social activities may be provided. Each community differs on what is covered, so you should carefully verify these details.
For instance, at the CCRC where we live, we have a monthly fee for food (lunch and dinner). If we don’t use it, we lose it. Although, if we haven’t used it all after a certain period, we can give a party with the accumulated credit or donate it to employees. Another example of a service we enjoy is that our place is cleaned weekly, and linens are provided if desired.
Be aware that, just like anything else, these monthly charges will increase annually. So, you should ask what the annual increases have been over the past five years. This is a particular area of concern this year, with the rate of inflation being so high for heating, staff salaries and food.
What levels of health care are available?
Here again, this depends. The purpose of the CCRC is to provide you with care and shelter for your lifetime. You start as an independent resident. Most CCRCs have an “assisted living” residence where you have round the clock nursing care if needed on a continual or part-time basis. Here again, at our place we are entitled to thirty days per year in this facility without charge (non-cumulative). Ideally a CCRC should have a dementia unit in case it is needed as you or your spouse age. In addition, nursing care may be available in your residence on an hourly basis (for a charge). For example, if you needed assistance taking a shower and dressing, help could be arranged.
Should we have a lawyer and/or accountant review the contract before signing it?
With any major decision, it is helpful to have your professional advisors review the documents outlining your legal and financial obligations. Our lawyer advised us that the CCRC wasn’t going to change the terms of the contract, but it was important for us to understand what our agreement covered.
Your advisors can be most helpful reviewing documents relating to the CCRC’s financial viability. This would include audited financial statements, annual reports, projected five-year budget, etc. There are a variety of key indicators to consider such as occupancy rates, days of cash on hand, net operating margins, long term debt and unrestricted cash and investments. After the collapse of the apartment building in Florida earlier this year, more attention is being paid to the stability of the structure of your residence, as well as insurance on the facilities.
Still, another useful source of information is to talk to the chair of the resident financial committee.
What will the CCRC ask you prior to admission?
Be aware that the CCRC reserves the right to not admit you if management doesn’t think you qualify financially and/or physically.
While it is especially important that the CCRC you select is financially sound, their management will want to make sure that you have the financial resources to pay not only the initial charges, but also the ongoing charges. Of course, no one knows how long they are going to live or the care they will need prior to death, but the CCRCs have amortization tables to factor in these uncertainties. In some communities, they also have a fund to take care of someone should they run out of money.
At our place they asked for records from our doctors and required in person interviews with each of us separately to determine if we could live independently. This is another reason to make this move sooner rather than later while you are still relatively healthy.
We realize this all seems like a lot of research, and it is. However, this is the place you plan to live out the rest of your life. You want to be able to move into your chosen community and focus on enjoying life instead of being concerned about your financial position or that of your chosen community.
One final personal note, I would urge you to volunteer to join at least one committee in your new residence. It is an excellent way to get involved with your new environment and have a voice in what happens!
Presented by Alexandra Armstrong, CFP®, CRPC®