Do your homework before moving into a retirement community

  • Continuing care retirement communities allow retirees to remain in one facility for the rest of their lives, providing independent living, assisted living and nursing home care.
  • There were nearly 2,000 CCRCs as of the end of 2017, according to Ziegler, an investment bank.
  • Upfront costs can exceed $100,000 and even hit $2 million.
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Retirees hoping to spend their golden years in an idyllic retirement community should slow down before signing over their savings.

Continuing care retirement communities, or CCRCs, give retirees the opportunity to age in one location, moving from independent living to assisted living and eventually skilled nursing care.

The arrangements are convenient and often luxurious, but some older Americans may overlook the financial due diligence they need to undertake before committing to a facility.

Often retirees may shell out well over $100,000 as an initial deposit and signing on for additional monthly payments that may change over time as their need for care increases.

"Walk through the memory care and nursing care areas and talk to people. Look at the staffing. Are people getting help from the staff? Are the residents happy and cared for?" -Gregory Zebolsky, principal, consulting actuary, Milliman

“For many people, even though this is the largest purchase in their lives and they put in a good chunk of their retirement savings, many are penny wise and pound foolish,” said Bernard Krooks, an elder law attorney and founding partner of Littman Krooks in New York City.

One of his clients paid $2 million up front to reside in a continuing care community. That retiree’s family is supposed to receive 90 percent of the deposit if he moves out or dies there, regardless of how long he resides there.

This refund policy will vary from one facility to other.

“They won’t hesitate to write a six- or seven-figure check to the facility, but it’s a bigger hurdle to have an accountant or advisor review the balance sheets,” Krooks said.

As of the end of 2017, there were 1,955 such communities in the U.S., according to Ziegler, an investment bank.

Here’s what you should know before you decide to live in one.

Amenities

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Narrowing down the continuing care center you’re interested in will begin with a question of lifestyle: You’re opting to spend the rest of your life there.

“You’re talking about everything from the floor plans, to the meal plans, services and amenities,” said Brad Breeding, a certified financial planner and founder of myLifeSite, a retirement community research site.

High-demand amenities include fitness centers on site and multiple dining venues, including cafes and bistros, said Gregory Zebolsky, principal and consulting actuary at Milliman.

Though the independent living facilities are the show stoppers, you should also check out their assisted living and nursing care departments before deciding.

“Walk through the memory care and nursing care areas and talk to people: Look at the staffing,” Zebolsky said. “Are people getting help from the staff? Are the residents happy and cared for?”

Dig into the books

Surviving market volatility in retirement

Another reason to look closely at your continuing care center: If its independent living quarters are sparsely occupied, there might be financial troubles ahead.

“In some cases, lower than 90 percent occupancy could suggest an issue with being able to fill certain units with new residents, and the inability to maintain a high occupancy level could be an indicator of problems in the future,” said Zebolsky.

Get into the details and work through them with your accountant: Key financial reports to obtain from your continuing care center include its audited financial statements, data on monthly service fee increases, financial ratios and reserves, according to the California Advocates for Nursing Home Reform.

Further, when continuing care centers do run into financial difficulty, there is no guarantee that a resident will get his or her money back.

In that case, another provider may buy out a struggling facility, potentially leading to a change in services and fees, Breeding said.

Review your state's rules

CCRCs are regulated by the states in which they are based. The degree to which those regulators will scrutinize these communities will vary.

For instance, some states require that these communities have their resident contracts approved by regulators and that their policies must address how and why monthly fees may increase, according to a 2010 report from the Government Accountability Office.

Prospective residents should reach out to the agency that oversees CCRCs within that state, said Breeding. Here's a list of state agencies that regulate these retirement communities.

Other questions to ask

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Don’t be swayed by glossy brochures and luxurious furnishings. Ask these questions as you visit facilities.

How much of my entry fee is refundable? Some agreements will give a 90 percent refund of your upfront fee if you change facilities or if you pass away within a certain period. “Many contracts will say that you or your heirs will receive that refund once your unit is reoccupied,” said Breeding. That means it could take some time before you get your money back.

Can we see your balance sheets? Highlights include the audited financial statements, the long-term debt to total assets ratio, the debt service coverage ratio and the amount of cash on hand.

Do you work with an actuarial firm? Actuarial firms help CCRCs determine whether their pricing is adequate for their residency contracts and ensure that they’re setting aside reserves for future obligations. Not all states require this.

What’s included with my monthly fee and what’s extra? Along with an upfront fee, residents will pay a certain amount each month that will vary based on their contracts.

Find out whether your monthly cost will change if you need assisted living or skilled nursing care and what amenities are included.

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