EDITOR'S NOTE: This article was originally published in the February 2010 issue of Kiplinger's Retirement Report. To subscribe, click here.
Roger Strand, 81, and his wife, Mary, 80, are considering a move to a continuing-care retirement community. The Strands, who live in the Minneapolis suburbs, like the idea that a CCRC would provide social activities and transportation around town. And they take comfort in knowing that they would remain in the same community if one spouse needed to move into a nursing facility.
But a CCRC is an expensive proposition and not without financial risk. The Strands want to make sure that the CCRC they choose is financially stable. They also want to understand what all the costs will be. As they tour communities in Minnesota and several other states, they're asking operators such questions as: Is there an extra charge for moving into assisted living or a nursing facility? Is the entrance fee fully refundable? And, says Roger, a retired manager in the bakery industry, "What happens if your finances take a huge hit? Do they throw you out on the street?"
The Strands are correct to ask probing questions. The bankruptcy of the Baltimore-based Erickson Retirement Communities, a leading developer of CCRCs with 19 communities nationwide, showed that even top-notch operators can end up in financial trouble. (Redwood Capital Investments, based in Hanover, Md., has since acquired most of Erickson's assets.)
Prospective residents need to look beyond the lovely dining facilities and manicured lawns, and understand the potential financial pitfalls. "You're really going to get dazzled by the CCRCs' marketing," says Joseph Wiseman, an elder-law attorney in Davis, Cal. But he warns that potential buyers should remember that this is a financial transaction, which involves upfront entrance fees of $150,000 to $1 million and monthly payments that could run several thousand dollars. "You don't want to spend this kind of money without doing your homework," says Wiseman.
If you're considering a CCRC, be sure to take a tour. Have a meal there, and ask to stay overnight. Ask residents and their families about staffing levels and turnover, any recent fee increases and how the CCRC determines when it's time to move from one level of care to another, says Eric Carlson, a long-term-care specialist at the National Senior Citizens Law Center, in Los Angeles. Also, he says, ask residents: "What surprised you, positively or negatively, about the way the CCRC operates or about the care that is provided?"
Check whether the CCRC is licensed by the state. State laws for CCRCs vary. An accreditation by the Commission on Accreditation of Rehabilitation Facilities (www.carf.org; 888-281-6531) is a plus. This organization evaluates CCRCs' business practices and financial performance.
Can the CCRC Deliver on Its Promises?
The two most important documents for assessing the costs and the financial outlook are the contract and the financial report. Make sure your accountant, financial adviser or lawyer reviews both documents. The contract will lay out the fees and costs and what services you will get for your money. The financial statement will provide some clues as to whether the facility can follow through on its promises. "You have to consider worst-case scenarios," says Carlson. "People assume that if they're making a large upfront payment, they're set for life. But in many cases, they may not be."
The contract will address one of the most important questions: What happens to your entrance fee when you move out or die? Many CCRCs will market a 100% refundable deposit, but the fine print may stipulate that a full deposit will depend on whether your unit is sold for its purchase price. "If it's a refundable entrance fee, ask what percentage you would get back, and when," says Susanne Matthiesen, managing director of the accreditation commission. If it takes a long time to find a new tenant, there could be a delay in getting your deposit back.
In some cases, you have no right to any refund. Dennis Sandoval, an elder-law attorney in Riverside, Cal., recalls meeting with an individual several years ago. The person's mother had died one year after moving into a CCRC, and the children thought that her $250,000 entrance fee would return to her estate. "The facility said, 'No, you don't get the money back,' " he says. Sandoval looked at the contract and verified that the mother had agreed not to receive a refund.