Welcome to week two of three in our discussion of developing life plans for seniors. Last week we provided information on the pros and cons of Aging in Place. This week we are going to review different options for CCRCs (continuing care retirement communities). We’ll review what CCRCs (also called LPCs or life plan communities) typically provide and a range of the costs for various services and programs. Generally, CCRCs and LPCs provide a continuum of aging care needs including independent living, assisted living, skilled nursing care and memory care.
Independent living. We all know we will age, but what we don’t know is how quickly change may come or if at all and as such what assistance we may need in our later years. At some point, many people decide that they should move to an independent living residence at a CCRC so that they can transition through the normal steps of aging with the care and services provided to them within one facility; at the time and in the manner that they need such services. Perhaps of equal importance are the benefits of easy access to opportunities to connect with others.
Independent living becomes your new home. Residences can be apartments, luxury apartments, town homes and single-family homes. They typically come packaged with a dining package, a wellness center, an activities program, access to cultural events and other amenities and conveniences including all maintenance and repairs.
Rent. Independent living often has rental options. Residences might range in size from 600 sq. ft. to 2,000 sq. ft. Monthly fees range from $4-$7 per square foot for a 1,000 sq. ft. unit, with units larger than 1,000 sq. ft. having a lower cost per sq. ft. A second person in the unit will cost about $1,000 per month. A dining plan, wellness classes, utilities, other amenities, and maintenance free living are included. Leases are generally for one year and include a security deposit of one month’s rent along with a one-time community fee equal to one month’s rent. At the end of the year, a new lease is executed if you choose to stay.
Entrance Fees. Many CCRCs charge an entrance fee, which can be significant. Depending on the amount of the entrance fee, there may be a return of 90%, 50% or none of it after you (and your spouse) have passed and a new resident has moved in. For example, for a higher priced residence, an entrance fee of $1,000,000 might provide a 90% of fee return, a $600,000 entrance fee might provide a 50% return and a $400,000 fee might have no return. Depending on how long you stay at the CCRC, this refund may not come back for 10 years or more. You don’t own the residence, you simply are paying to be admitted to the “Residence.” The typical contract with the CCRC provides a listing of services you receive as well as an outline of availability of additional services including, e.g., assisted living, skilled nursing, and memory loss care, which all require additional contracts and payments. The contract also provides a monthly fee which is comparable (sometimes higher and sometimes lower) than monthly rental fees as discussed above. In theory, the CCRC is using your entrance money to get a return on its investment in your unit and to reduce its monthly charges to you. The refundable entrance fee for the many exclusive CCRCs can be more than $1,000 per square foot.
Many of the CCRCs are affiliated with a religious organization and are not-for-profits. You don’t pay real estate taxes on your unit. If you decide you don’t like your unit and want to move within the CCRC facility or leave altogether, you have to work that out with the facility, and it can be a big problem.
Equity Ownership. Residents living in an equity CCRC actually own their residence and still pay a monthly service fee or membership fee for services and amenities. The monthly fee is comparable to the entrance fee model monthly fees. You will also normally pay for real estate taxes based on the value of your residence. Many of the equity ownership residences will also offer on-site long-term services if needed similar to what the Entrance Fee residences do.
Equity ownership means that you and your family can sell the residence anytime. When you sell it, you get market value and obtain the appreciation, if any, in your home while you are there. This sale can take place anytime and, of course, may be subject to a sales commission. This is a big net cost benefit to equity owners and their families. Instead of an entrance fee that earns no interest or appreciation and gets reduced or eliminated when you pass years from now, equity ownership provides the potential to get your entire downpayment returned and even provide some upside. It also provides flexibility if you don’t like your residence or the community. You are in control of the residence and have a “membership agreement” with the CRCC to provide current and future services. The price per square foot on equity models we have reviewed can be as much as $1,400 per sq. ft. on high-end units, which includes about $140 per sq. ft. (10%) of that amount as the “membership fee” for the equity ownership CCRC.
Before we compare and contrast these three options, let’s take a quick look at the long-term care services and rough costs for each at any of these facilities. That’s a key reason why you select one CCRC over another.
Assisted living. At some point, many of us will need assistance with our basic day-to-day activities, including bathing, dressing, feeding, toileting, mobility, cognitive ability, and other items. Many facilities rate the extent of assistance needed, e.g. 1-5. There is both a base monthly charge for living in the assisted living unit plus a potential additional charge for those that require lots of assistance, e.g. checks every 30 minutes. The unit (perhaps 400-800 sq. ft.) might rent for $4,000 to $8,000 per month and the service fee for levels 1-5 might range from $0 to $2,500 per month. You need to add the two together.
Memory Care. For those experiencing dementia, Memory Care focuses on maintaining memory and stimulating socialization. Those are typically smaller units, perhaps 350 sq. ft. and the monthly fee could be $7,000-$9,000 per month. Understand of course that if one person in a couple is in memory care and the other in independent living, there will be two charges each month. Same holds true for assisted living.
Respite Care. Respite care provides short-term relief for primary caregivers. If you were the primary caregiver to an elderly person and you were going on a trip for a week, you could take your loved one to a facility that offered respite care and be charged by the day, week, or month, roughly $250 per day.
Rehabilitation. When a senior has had an injury or undergoes surgery, many CCRCs offer accommodations to assist short-term residents to return to their prior living arrangements and lifestyle.
Skilled Care. Some CCRCs also provide on-site nursing teams, sometimes connected with a local hospital, to assist seniors needing additional supportive care. These services are often charged on a per day basis, of roughly $300 to $400 per day, or roughly $9,000 to $12,000 per month.
CCRCs may provide all of the above, some or none. Certainly, the availability and quality of these services at a CCRC will likely have a major impact on a senior’s final chapter on this Earth. Having said that, we are aware of seniors, like my dad, who died suddenly and never spent one day in a long-term care facility.
Let’s now look at key Factors of cost and selection for a CCRC:
- Wishes. As we indicated in last week’s blog on Aging in Place, we think the focus should be on fulfilling the wishes of the senior(s) that is(are) considering moving to a CCRC.
- Health. Even for those seniors who are currently in excellent shape, consideration needs to be given to the availability and quality of the long-term care services available at the CCRC. As Yogi Berra said, it’s tough to make predictions, especially about the future. Certainly, if you are already dealing with the need for help with a senior’s daily activities and/or dementia, this factor is already a key one. We know of seniors who start at a community for independent living and are there for 2-3 years and then have a medical event that exposes the limited long-term care facilities available at that community and need to move. None of us want Mom or Dad to go through that.
- Finances. Obviously, this is very important. The rental program is fairly straightforward. The Entrance Fee and Equity Ownership require deeper analysis. Key consideration has to be given to the “opportunity cost” of “investing” a substantial amount in entrance fees or equity ownership. What might those funds have earned if they had been invested?
- Location. Moving away from a current residence is a big deal, particularly for seniors. For some, it may mean moving away from their yard, flowers, and nature into an apartment. It would be a bonus if the new location brought the senior closer to family and friends.
Conclusion: For our clients and friends, moving into a CCRC should not result in a reduction in your daily level of happiness and comfort. It hopefully should improve those. The overall costs of independent living should be no more than what it costs the senior currently. Let’s make a rough estimate, using our readers, that a typical net worth is composed of 1/3 residence and 2/3 investments. That would mean, e.g, if you owned a $500k house you might have $1 million in investments, or a $1 million house and $2 million in investments or a $2 million house with $4 million in investments. We see that ratio all the time. Each senior could find a CCRC residence that would be comparable to what they have currently in a residence and have enough money to pay the monthly bills. Moving to a CCRC should not be considered “downsizing” but rather adding a long-term care component to your residence that will allow you and your family to enjoy this chapter of life as happy, healthy, and comfortably as possible.
Next week’s blog will review considerations regarding long-term care insurance, income taxes, estate matters and timing. As you can see by this topic requiring three long blogs, making a long-term plan for you or your loved one’s final chapter on Earth is a very complicated and very important decision. Everyone’s situation is different. We suggest you work with wealth managers who know the subject and know you. We’ll go through that in more detail next week.