In a previous article, we discussed the three main standalone senior-living options:
- Independent living communities
- Assisted living and memory care communities
- Skilled nursing care facilities (nursing homes)
The main drawback of these standalone communities is that as a resident’s health declines, they may need to move from one kind of facility into another. This transition can be physically and emotionally traumatic.
A Continuing Care Retirement Community (CCRC) offers a viable alternative. Independent living, assisted-living and nursing and other medical services may all be offered in a single location, allowing seniors to “age in place.” Residents often have a variety of living spaces they can choose from, from apartments to standalone homes.
While some CCRCs allow seniors to rent their living spaces, most require residents to pay significant “entrance fees” to gain access to the highest level of services and amenities. The entrance fee option they choose determines how much they may need to pay for future care costs. Residents also pay monthly fees that usually cover meals, activities, maintenance, cleaning services and any assisted living or healthcare services they may need at some future point.
Let’s take a closer look at these up-front and ongoing expenses.
Access--at a significant price
CCRC entrance fees give residents, at the very minimum, the right to receive all of assisted living and healthcare services they may need within their community. Some CCRCs allow residents to receive these services in their living space. Others require them to move to another location (such as a dedicated memory care unit) in the community.
According to AARP, entrance fees can run anywhere from $40,000 to $2 million or more. The average entrance fee is around $402,000.
Healthy residents who move into CCRCs understand that they will eventually need access to the care services the community provides.
Since these costs often rise significantly over time, CCRCs are required by law to offer three different entrance fee options that give residents the ability to choose how much control they want to have over future care costs. When they start receiving these services, their costs are included in their monthly fees.
Inclusive CCRC (Type A) contracts
This most expensive option allows residents to pay ahead to receive high levels of care either now or later with minimal increases in monthly fees—or in some cases, no increases, period.
Seniors who chose these contracts are essentially paying for care services ahead of time to protect against significant future cost increases.
Type A entrance fees may be as high as $1 million or more, and monthly fees may be anywhere from $2,500 to $5,000 or more.*
Modified CCRC (Type B) contracts
These contracts trade relative affordability for limited protection against future care costs.
A Type B contract may give a resident a predefined annual or lifetime allotment of care services at a lower cost. For example, a contract could provide up to 30 days of lower-cost care every year. After this limit is reached, the CCRC may charge market rates for additional services.
Type B entrance fees are usually lower than Type A fees, ranging from $80,000 to $750,000. Monthly fees may be anywhere from $1,500 to $2,500 or more.*
Fee-For-Service (Type C) CCRC contracts
Seniors who choose Type C contracts pay the lowest entrance fees, often ranging from $100,000 to $500,000. If they need care services at some point, they’ll pay prevailing market rates, which will be included in their monthly fees.
If residents don’t need care services, their monthly fees could be less than $1,000 per month. However, if they do need high levels of care, they may end up paying $10,000 or more per month.*
Refundability of entrance fees
Many CCRC contracts offer optional refundability provisions that will give residents (or their heirs) some portion of entrance fees back if the resident dies or moves out of the CCRC.
With declining scale refunds, the refund starts at a certain level and declines at a specified rate (for example, 1% per month). The longer a resident remains there, the lower the refund amount will be.
With partially refundable entrance fees, the CCRC refund amount is fixed and never declines, no matter how long the resident stays there. For example, with an 80% partially refundable provision, residents will receive 80% of the entry fee if they move out, or their heirs will receive the same amount when the resident passes away.
Keep in mind that contracts with refundability provisions are generally more expensive than non-refundable contracts.
Other factors to consider
It's generally better to move into a CCRC when you're younger and relatively healthy, so you can enjoy the benefits of independent senior living and lower monthly fees for as long as possible before declining physical and mental health require you to pay more for assisted living and healthcare services.
The costs of any CCRC will vary widely depending on the location of the community and the style of living it offers. Lower-cost CCRCs may have fewer amenities and less attractive living spaces and common areas than more upscale communities.
When evaluating entrance fee contract options, you need to carefully consider whether you'd prefer to pay more money up front to keep a tighter lid on future care costs, or whether you'd rather pay less at the beginning and eventually pay market rates for care.
Evaluating different CCRCs can be confusing and emotionally draining, which is why you may want to ask your children or other family members to accompany you as you visit different facilities and discuss payment options with residence managers.
Before you take a tour you may want to meet with a financial advisor to take you through various payment scenarios to help you evaluate their impact on the long-term viability of your retirement nest egg.
This article is for general informational purposes only. Although we do our best to make sure the information is as accurate as possible, many states have their own laws defining specific payment requirements for CCRCs. You way want to speak with a senior-living consultant to gain a better understanding of all of the options available and their associated costs.
This article was authored by Chris Gullotti and Jeffrey Briskin. Chris is a financial advisor and Partner with Canby Financial Advisors, a SEC-registered investment adviser. SEC registration does not constitute an endorsement by the SEC nor a statement about any skill or training. Chris can be reached at 508.598.1082 or cgullotti@canbyfinancial.com. Jeffrey Briskin is Director of Marketing at Canby Financial Advisors.
*Source for cost estimates: https://www.care.com/c/continuing-care-retirement-community-cost/. Note that this article was published in 2021. Average entrance fee and monthly fee ranges may be significantly higher or lower today.
©2024 Canby Financial Advisors.