ABCs of CCRCs: Choosing a Life Care Community

 

My husband and I recently took a big step in planning our future. We paid a $1,500 refundable deposit to get on the waiting list for a continuing care retirement community (CCRC) with a target move-in date of 2033. Why the long timeline? We are healthy, active, and not ready to leave our beautiful single family home. At the same time, we don’t want to wait until our 80s and find 200 people ahead of us. The waiting list is about 200 with annual turnover of about 20-25 units.

Also known as Life Care or Life Plan communities, CCRCs provide housing for older adults on a continuum beginning with independent living and including assisted living, memory care, and/or skilled nursing care services, if needed. Below are seven things to know about CCRCs:

 

Rationale for CCRC Selection- Three common reasons why people select CCRCs are 1. to have a “forever home” in later life, 2. to not burden their family with end-of-life housing and health care decisions, and 3. they do not have family members to assist with end-of-life decisions.

 

CCRC Ownership- Approximately 80% of CCRCs are non-profit organizations. Some are faith-based, some have affiliations with educational institutions, and some are independent non-profits.

 

Entry Fees- There are different payment models. Many CCRCs charge a substantial six-figure entry fee and some offer rental contracts. Entry fees increase with the square footage of the independent living unit that an individual or couple selects. Entry fees at the CCRC that I selected ranged from $237,000 (488 sq. ft.)  to $863,100 (2,350 sq. ft.) with an extra $59,000 for a second person. Part of the entry fee is used to pre-pay residents’ future health care services.

 

Monthly Fees- Like entry fees, monthly fees increase with the square footage of units and the number of occupants. For the units noted above, the monthly fees are $3,190 and $9,455, respectively, with an extra $1,850 charged for a second person.

 

Health Evaluation- Prospective residents must generally complete a health questionnaire and undergo a cognitive assessment to be offered entry into a CCRC. This is done when they reach the top of the waiting list and are near the time that they plan to move in. It is a standard risk management practice to reduce the risk of a high number of residents needing nursing care.

 

Financial Evaluation- Prospective residents must also prove that they have the financial resources necessary to live at a CCRC. A net worth statement and supporting documentation is generally required. Common metrics used by CCRCs are that prospective residents should have assets totaling at least twice the entry fee and income totaling at least twice the monthly fee.

 

CCRC Contracts- Most CCRCs have several contract options. The difference boils down to how much care is prepaid. Lifecare contacts prepay unlimited care with a level inflation-adjusted monthly fee for predictability of housing and health care costs. A disadvantage is pre-paying for care that may not be needed. Some people opt to pay less up front and more later, if necessary.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

 

Financial Planning for Longevity

 

Longevity risk is the possibility of living longer than expected and having adequate income/assets for an extended period of retirement. I recently attended a webinar that predicted future life expectancy will increase due to medical technology advances such as CRISPR (modifying DNA).

The webinar also noted that many older adults no longer follow a linear lifeline (birth-school-work-retire-die) but, rather, a cyclical lifeline. They reinvent themselves in later life, often with additional education and new jobs or other meaningful pursuits. Lifelong learning is a key factor.

 

The webinar further explained that the 3-legged stool of retirement income sources (pension, Social Security, investment earnings) is very wobbly. Fewer than 20% of employers provide pensions and the Social Security trust fund is estimated to run out of money in 2033. At the point that reserves are depleted, FICA tax income will be able to pay only about 77% of scheduled benefits.

 

What to do? Below are seven financial planning strategies for “the age of longevity”:

 

¨   Develop a Long-Term Care (LTC) Plan- Consider various options including self-funding LTC expenses, moving to a continuing care retirement community, and LTC insurance. Buy a LTC policy with comprehensive coverage (in-home, assisted living, and nursing home).

 

¨   Optimize Social Security Benefits- Learn about various claiming strategies for Social Security. Consider delaying benefits up through age 70 to increase monthly payments if you are in good health, are financially secure, and expect to live a longer life span.

 

¨   Plan for Health Care Costs- Estimate health care expenses in retirement and work them into your budget. Costs include Medicare premiums, deductibles, copayments and other out-of-pocket expenses. Shop around for coverage during annual open enrollment season.

 

¨   Stay Healthy- Invest time and money in maintaining good health through proper nutrition, regular exercise, and preventive care (e.g., screening exams). Healthy habits can reduce health care costs and improve quality of life in “old old” years (age 85+).

 

¨   Consider a Reverse Mortgage- Evaluate the option of a reverse mortgage to tap into home equity for living expenses without having to move. Be sure to understand the terms of the loan and downsides (e.g., relatively high fees and smaller inheritance for heirs) before proceeding.

 

¨   Explore Annuities- Consider purchasing low-expense annuities to provide a steady stream of income in retirement. Compare different types (fixed, variable, or indexed) to find the best fit for your financial needs and investment risk tolerance.

 

¨   Get Advice as Needed- Consult with a financial planner, tax professional, or estate planning attorney for guidance on investing and tax-efficient asset withdrawal strategies.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Financial Transitions in Later Life

 I recently presented a webinar for financial practitioners called Important Financial Transitions in Later Life. Based on content of my book, Flipping a Switch, “flipped switches” are a metaphor for later life transitions. Below is a brief summary of 11 financial transitions:

Spending Down Retirement Savings- It can be difficult psychologically for “super savers” to spend down accumulated wealth because it feels like a loss. Two good questions to ask yourself are “If you don’t spend your money, who will?” and “What are you waiting for?”

 

Deciding When You Have “Enough”- A good way to determine whether you have saved enough money is to try at least three retirement savings calculators and compare the results.

 

Creating a Retirement “Paycheck”- To create a regular stream of income, options include bond or CD ladders, low-expense annuities, and personalized modifications of the “4% Rule.”

 

Required Minimum Distributions- This is a mandatory “flipped switch.” Make a plan for the use of money that is withdrawn. It can be spent (for living expenses or fun), gifted, or resaved.

 

Later Life Investing- Investors generally get more conservative as they age and guidelines like 100 (or 110,120) minus age are a useful start. Asset classes should be rebalanced regularly.

 

Adjusting to Changed Income- Income changes vs. working years. To adjust to living on less, people can work longer, spend less, move to a less costly home or area, and/or tap home equity.

 

Changed Tax Withholding- Many older adults have multiple streams of income and must make sure that tax withholding/estimated payments are adequate to avoid underwithholding.

 

Becoming a Social Security Beneficiary- Key factors are full retirement age, the annual earnings limit, benefit planning for couples, and a possible higher benefit if you keep working.

 

Health Care Transitions- Older adults have more time for exercise and healthy eating and should earmark a portion of their household budget for out-of-pocket health care expenses.

 

Transitioning to Medicare- A good resource to “get up to speed” is the annually updated Medicare and You handbook. Higher-income beneficiaries need to understand IRMAA, which is the higher monthly Medicare premium that they must pay. There are five tiers of IRMAA.

 

Setting New Financial Goals- Once people get “to retirement,” subsequent financial goals are “through retirement.” Like all SMART goals, they need a projected cost and time deadline.

 

More information about financial transitions in later life can be found in Part 1 of my book.

 

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.