Continuing Care Retirement Communities, Part 1–Seven Essential Things to Know

The takeaway:  Continuing Care Retirement Communities are housing developments that let you age in place, while also providing long-term care if you need it. They are one of the three major types of long-term care insurance you can buy; the other two were discussed in an earlier post.  Unless you have money to burn, be clear on the seven vital–but basic–issues listed below, prior to signing on the dotted line.  These communities have plenty of advantages beyond the long-term care services they offer.

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Ahoy, Boomer! After all our talk about outliving your money, tracking expenses, and retirement health care costs, let’s lighten the mood with a more cheerful topic.

Let’s talk about long-term care insurance.  

WoooHoo! I know your mood’s lighter already. 😉

From the long-term care series, you over-achievers already know that there are three major types of long-term care policies you can buy. Two of these three were discussed here.

The third major type of long-term care insurance is what you can get when you buy into a Continuing Care Retirement Community.

What’s a Continuing Care Retirement Community?

Continuing Care Retirement Communities are housing developments that let you age in place, while also providing you long-term care if you eventually need it. They offer:

• independent living for those who can still easily live on their own;
• assisted living for those who need help with activities of daily living–like bathing, dressing, eating, etc.; and
• nursing home care for those who need around-the-clock supervision and medical assistance.

As your needs change, you can move from one level of care to another, without ever leaving the community. Generally, you must be independent and sufficiently healthy when you first move into one of these communities. The minimum move-in age is typically between 55 and 62. 

These communities vary in size. Some are multi-acre campuses containing houses, condos, and apartments. Others can be one large building in the middle of a city. As your health care needs change, you can move from one level of care to another, without ever leaving the community.

What are the seven things you should know before you sign on the dotted line?

#1.  Know the fees! 

There are two types of fees:  entrance fees and monthly fees. 

Entrance fees. Fee size depends on the type of unit you select and where in the country you live. Entrance fees can range from $75,000 to $1 million. Generally, you don’t get your entrance fee back, but check with your individual community.

As of this writing, the entrance fee is partially tax deductible as a long-term care expense. Check with the community and confirm with a tax professional.

Monthly fees. These fees range from $1,800 to over $5,000 a month, depending on the size of your unit, and where in the country you live. You can expect annual increases of 4% to 6% annually.

At these rates, your monthly fees will double every 12 to 18 years. Be prepared! (See the Rule of 72 for calculating how often your fees and investments double.)

Entrance fees range from $75,000 to $1 million. Monthly fees range from $1,800 to over $5,000. Expect monthly fees to increase 3% to 6% annually.”

#2. Understand the three different types of contracts and how they’ll affect your nest-egg.

Boomer, your total costs, from the time you move in until the time you exit stage left, will depend on the type of contract you sign–and whether you ever need long-term care.

There are three main types of contracts. They represent a continuum of services.

Life-Care contracts offer unlimited independent living, assisted living, and nursing home care for one all-inclusive price.

My father-in-law’s story.  My father-in-law lived independently in a community that required these life-care contracts. Over the 20-year period he lived there, he needed nursing home care off-and-on for only about five months.

The advantage of the all-inclusive price of his life-care contract was that he didn’t have to worry about the unpredictability of long-term care costs. 

This is important because stability and predictability don’t exist for most traditional long-term care insurance you might buy.  He eventually did need long-term care, it was for five months, and the price had all been included in the up-front fees he paid when he moved in.

The disadvantage of this type of contract was that he paid relatively high up-front fees to cover services he barely used during his twenty-year residency. 

He didn’t care.  He’d made his decision based on the experience of his bride of 60 years. 

My mother-in-law’s opposite story.  She could have really benefited from living in a continuing care retirement community that required a life-care contract.  At the end of her life, she needed more and more services to manage the ravages of dementia.

Initially, she needed assisted living care, which was provided in the family home.  At the end, she required 2.5 years of institutional nursing home care. 

By itself, the nursing home care cost $262,500 in today’s dollars–a sizable hit to their retirement nest-egg.  The in-home assisted living care costs added to the devastation.    

For my mother-in-law, the high up-front-fees for a  life-contract community would have been cheaper than what all her care ultimately cost. 

Life-care contracts may save you money if you eventually need long-term care, but you could end up paying for services you never use.“

Modified contracts provide independent living, assisted living, and nursing home care for one all-inclusive price only for a limited time. After that window of time closes, the pricing for fees and services may increase or may revert to a fee-for-service contract, defined below.

Fee-for-Service contracts charge for services on an a la carte basis. With these contracts, the more care you require, the more you pay. If you move from independent living to assisted living, your fees increase. If you move from assisted living to a nursing home, your fees increase even more. 

The advantages of these fee-for-service contracts are that you only pay for the services you need.  This kind of contract would have been great for my father-in-law, who barely needed long-term care until the last five months of his life. 

The disadvantages of these contracts are that this a la carte pricing could result in you paying more than you might have if your experience turns out like my mother-in-law’s. 

She would have benefited from the life-care contract, which provides the one-and-done fee upfront.  Any added care is generally already covered or relatively small.   

And one more thing, Boomer.  If a fee-for-service community hints that their residents pay less for long-term care than what’s charged on the open market, verify that “fact.”  Check out Genworth’s annual cost of care survey. 

Bottom line.  My father-in-law would have done better with the a la carte costs of a fee-for-service community.  My my mother-in-law would have been better off in a community requiring a one-and-done life-care contract.  

It’s wretched out there, Boomer!  Weigh your odds. Then take the long-term care insurance quiz to clarify your thoughts.

In the meantime, check out the real world cost differences between the two types of contract communities below.

#3. Be familiar with real world cost differences between life-care vs. fee-for-service Communities.

Boomer, here are the actual costs of two continuing care retirement communities. One requires a life-care contract; the other a fee-for-service contract. You can see that the life-care contract starts high but doesn’t increase fees for assisted living or nursing home care. In contrast, the fee-for-service facility has lower initial fees, but those prices climb if you need long-term care.

Life-care contracts start a little higher but end a lot cheaper than do fee-for-service contracts.

These prices are for communities in the southeast–one in North Carolina and the other in North Florida.  If you live in the mid-west, your costs could be lower.  In the northeast, or on the west coast, they could be higher.

Also, if these prices seem high, check out  my column about *maybe* getting Medicaid to potentially pay this cost for you.  You *might* be one of the sixty-two percent of nursing home residents to have their care paid by Medicaid.)[/caption]

Aside from long-term care, continuing care retirement communities provide a wealth of recreational and social amenities.”

#4. Be clear on what the emotional benefits of Continuing Care Retirement Communities are.

Should you or your spouse need long-term care, Continuing Care Retirement Communities have the advantage of:

• avoiding the trauma of having to leave your friends and neighborhood, since long-term care facilities are located on site;
• enabling community friends to easily drop-in and see you, since you remain nearby;
• providing professional long-term care so that you’re not a burden to your family; and
• enabling the spouse who doesn’t need long-term care to easily see the one who does with just a short walk or drive across the campus.

#5. Understand the amenities and activities offered by Continuing Care Retirement Communities.

The good folks at After 55.com have outlined the typical amenities and activities available. These include:

Recreation facilities, like

• • putting greens;
  • weight rooms;
  • swimming pools; and
  • tennis courts.

Wellness and fitness programs, like

• • yoga;
  • tai chi;
  • water aerobics; and
  • balance classes.

Selected health care services, like

• • personal trainers;
  • physical therapists; and
  • consultations with a doctor or nurse practitioner for minor health problems.

Meals, which can include

• • meal plans and
  • community dining hall programs for those who don’t want to cook.

Home care and maintenance, like

• • housekeeping;
  • home maintenance; and
  • yard maintenance.

Transportation to such places as:

• • grocery stores;
  • shopping malls; and
  • doctors’ offices.

I recently ran into a neighbor who’d moved into one of these places a few years ago. She said she never dreamed, that at her age, she’d make so many new friends and be involved in so many activities. Then she listed all the things she liked about it, which mirrored the above list.

Still, in the interest of full-disclosure, not everybody loves these places.

#6. Know the downside of Continuing Care Retirement Communities.

The good folks over at Next Avenue report that common complaints about these communities are:

• a lack of control;
• a lack of privacy;
• too much interaction with one’s neighbors; and
• the feeling that death is just around the corner.

Know what to ask the sales staff before you buy into a Continuing Care Retirement Community.“

#7. Know what to ask before you sign on the dotted line.

Boomer, I’ve got some checklists to help you decide if Continuing Care Retirement Communities are worth the money.  If you determine they are worth the money, then check out these questions to ask sales staff before you sign on the dotted line.  You have a lot of money riding on this thing, Boomer. It pays to be cautious.

Until next time, Boomer, live long and prosper.

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Long-Term Care Series  (Oldest to Newest)

• Long-Term Care Insurance: Five Warnings Before You Buy
• Long-Term Care Insurance Quiz:  Will I Need It?  Can I Get It? 
• 17 Ways to Get Turned Down for Long-Term Care Insurance.  (And What Happened to Me.)   ** Most popular post on blog!
• Getting Medicaid to (Maybe) Pay for Your Nursing Home Costs:  The (Updated) Epic Guide!
• Three Types of Long-Term Care Insurance: You Might Not Need Any!
• Continuing Care Retirement Communities Part 1 —Seven Essential Things to Know
• Continuing Care Retirement Communities Part 2 — Four Ways to Figure Out if They’re Worth the Money
• Continuing Care Retirement Communities, Part 3 — What to Ask Before Signing on the Dotted Line.  
• Staring Down Your Long-Term Care Odds–Much Better News Than You Thought.
• How to Evaluate a Long-Term Care Policy.  (Hint:  Know These Three Things.)
• The Three Factors Affecting Your Long-Term Care Insurance Costs
• My Encounters in the Wild With Long-Term Care Sales Agents.

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