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Financial Considerations When Exploring Continuing Care Retirement Communities
Published Date : May 1, 2017
The decision to move into a Continuing Care Retirement Community (CCRC) is a major life event that warrants careful planning to ensure long term financial sustainability. Certainly, there are personal and emotional considerations to explore when facing this major decision; however, as you get to the point of considering a specific CCRC you will need to address options regarding the refundability of entrance fees and the services covered by your contract options. Refunds and service options vary from organization to organization, but there are some broad industry-wide characteristics worth understanding before embarking on your exploration. The key to finding the right contract and fee refund options for you are to understand what your financial assets can sustain, as well as the services you anticipate will be needed.
CCRC contracts can be divided in to three general categories:
- Type A (Extensive or life care) – Generally has the highest entrance fee and ongoing monthly fees. These plans provide the most extensive coverage and predictable costs. Coverage usually consists of residential health services, assisted living and skilled nursing services at minimal or no addition fee.
- Type B (Modified/Combination) – Similar in coverage to that of Type A, however, fees are somewhat lower due to the predetermined limits of assisted living and skilled nursing coverage. Additional services beyond the plan’s coverage are charged to the resident when utilized.
- Type C (Fee for service) – Generally the lowest upfront and ongoing fixed costs and limited coverage for future services. Generally considered a “pay as you go” plan where costs are driven by the health and needs of the resident.
The one-time entrance refund options can be divided into two categories:
- Traditional declining balance (amortizing entrance fees) – The entrance fee refund declines by a predetermined monthly percentage rate usually differentiated by either one’s decision to move out or the timing of the death of the last resident. In most plans refunds typical decline to 0% refund over a 2 to 5 year periods.
- Refundable entrance fee (fixed percentage refund) – Typically, a higher entrance fee amount than the traditional declining option, though a guaranteed percentage (usually 90%, 75% or 50%) is returned to the resident or their estate regardless of the passage of time.
Each CCRC usually offers one or more of the coverage plans and refund variations mentioned, so having a baseline understanding of these general options should be helpful when comparing offerings. Finding the right financial solution will depend on your ability to afford the upfront and ongoing cost of coverage, which can be accomplished through cash flow analysis. The goal of the cash flow exercise is to maximize the healthcare coverage appropriate to your health status while minimizing your cash outlay. While there is no one correct refund or coverage option that applies to everyone’s unique situation, we have found the combination of a refundable entrance fee and a contract similar to a Type B gives most participants an optimal mix of financial flexibility and cash flow certainty. If you are considering a move to a CCRC, we recommend that you speak with your Wealth Manager to see which of the approaches best fits your long-term financial and life plan.
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Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
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All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
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