Continuing Care Retirement Communities, What You Need To Know

By Martha Batista, CEO
Senior Living Advisory Group of Scottsdale

July 9, 2014

When it comes to long term care and senior living, we are so extremely lucky to be living in an area of the country that offers so many different options.  Chances are that you will be able to find exactly what you need and want here in the Valley of the Sun.  However, with the many options to choose from, also come confusion and often frustration.  To make the right decision, it is important to educate yourself on what each option offers and the financial commitments attached to them.  One question that comes up frequently is whether a buy-in option makes sense. And the answer is…it depends.

First, let’s make sure we all understand what a buy-in is and is not.  In broad terms, there are two types of communities – those that offer a rental model, and those that require a buy-in.  The rental model is easy to understand.  You pay a monthly fee that includes your apartment rent and your care services.  You will pay a relative small, one time only, community fee at the time of move in, ranging from $2000 to $4000.  Your monthly fee will most likely increase every year by 2% to 3%, depending on the community.  As your level of care increases (i.e. if you move from independent to assisted living, or from assisted living to memory care, or just need additional services), your care costs will increase, sometimes significantly.   This is the big unknown for most people and the major challenge in preparing a financial plan for the future.

A buy-in community takes away this challenge, but at a cost.  A buy-in community is also known as a CCRC – Continuum of Care Retirement Community.  And there are different types as well, but let’s keep it simple for now.  A CCRC offers different levels of care on the same campus, starting with independent living, assisted living, memory care and skilled nursing and rehab.   The most attractive attribute of a CCRC is that your monthly fee will not change as your level of care changes.  The only increase you will see is the usual 2% to 3% on an annual basis.  This makes planning much easier to do.  However, this “peace of mind” will require a substantial amount of money upfront, ranging from $70K to over $600K, depending on the community and size of apartment you choose.  The term “buy-in” is a misnomer because you are not really buying an asset like you would buy a house.  What you are buying, in a sense, is an insurance that your cost will be stable no matter the level of care that you will need in the future.

So the question is: how do you decide which type of community is right for you?  For some, the answer to this question is very easy – they simply do not have the financial means to afford a buy-in.  For others, is not as simple, and the answer depends on many factors:

• Your health today – a buy-in makes sense for people that are still healthy, active and can enjoy true independent living for a while. You want to take advantage of all the community has to offer.

• Your current age – doing a buy-in in your late 80’s or early 90’s may not make much sense. In general, the longer you can stay in the community, the better return in your investment you will get.

• How you expect to age – this one is a tough one to assess but some people have a good idea that they may need care services or even memory care down the road. They may have a family history or have already received an early diagnosis. If you expect to need care services down the road, a buy-in option should be a consideration.

• Single or a couple –because of the way the financials are structured for a buy-in, a couple may be able to obtain a faster return on investment than a single person. 

• How you feel about the community – in our opinion, if you are doing a buy-in, you must absolutely love the community. You should be able to see yourself living there for the rest of your life. It’s a big commitment, and once you sign that contract, it is not easy to back out.

• Financials – there are many numbers to consider when making the decision and this is an area where we recommend you reach to professionals for guidance. It is important to compare the economics of a CCRC buy-in versus that of a monthly pay-as-you-go option. For example, the figure below is an analysis we did for a couple in their early eighties. Given their situation and particular set of assumptions, our analysis helped the couple understand that the economic break even would be about 4 years with a buy-in option versus the next best alternative; in this case, a month-to-month senior living community or an assisted living group home. This gave them the confidence to choose the buy-in option even though it required a substantial upfront “buy-in” fee.

Client Example of an Economic Break Even Analysis

 

Every situation is different and it would be foolish to prescribe an algorithm by which seniors and their families can quickly determine what is the best option for them.  We believe that educating yourself in all aspects of what is available and becoming a smart consumer is the best course of action, whether you do it by yourself or speak with your professional Senior Living Advisor.