You’ve made the decision that you want to move to a continuing care retirement community (CCRC, also called a life plan community). You’ve crunched the numbers and can afford the monthly service fee, which, according to 2019 NIC guide (sixth edition), averages $3,353 (though of course some are much higher and others much lower, depending on breadth of services, amenities, size of the residence, and location). But then there’s the matter of paying the entry fee.
It is typical for CCRCs to require an entry fee, in addition to a monthly service fee, whereas many other independent living retirement communities operate under a rental retirement model, which does not have an entry fee. And then to make matters even more complex, there are different types of CCRC entry fee contracts — with some having entry fees that are partially refundable. (You can learn more about refundable entry fee contracts here.)
According to data collected by myLifeSite, about three-quarters of all CCRCs require an entry fee, and about 80 percent of these communities offer a refundable entry fee option, with 50 percent and 90 percent refunds being the most popular. In some cases, a community will offer a refundable entry fee contract option in addition to a traditional, declining balance (non-refundable) entry fee contract.
But what do you actually get for that CCRC entry fee, how much can you expect to pay for an entry fee, and how do people cover that sometimes hefty expense? Let’s take a closer look at each of these questions.
>> Related: Comparing Rental Retirement Communities and Life Plan Communities
What do you get in exchange for a CCRC entry fee?
One of the big benefits of choosing a CCRC is the availability of a continuum of care services offered on-site to CCRC residents. In fact, this is the main distinguishing feature of CCRCs that sets them apart from other senior living communities.
In addition to independent living residences, CCRC residents are usually given priority (or, in some cases, exclusive) access to care services, including assisted living, memory care, and/or 24-hour skilled nursing care, as needed. Ideally, a resident of a life plan community will never have to move again as their healthcare needs increase, except perhaps to the on-site healthcare center.
Contract terms and what you get for the entry fee varies from community to community. In general, the monthly services fees will be lower at an entry-fee community than they would be at a comparable community without an entry fee. Also, in some cases, the entry fee helps offset the cost of care you may need in the future, much like a long-term care insurance policy would.
Furthermore, many non-profit CCRCs offer financial assistance to residents with a CCRC contract who, due to no fault of their own, can no longer afford the monthly service fees.
And remember, depending on which contract type you choose, you may get back some portion of that entry fee if you ever move out of the CCRC or as a payment to your heirs.
>> Related: The Cost of a CCRC vs. the Value to Residents
How much is a CCRC entry fee?
The average entry fee for CCRCs is approximately $300,000 – $350,000, but this too can vary dramatically based on similar criteria as the monthly service fee. The cost also depends somewhat on the type of CCRC residency contract you select. It’s important to keep in mind that in many CCRCs, a sizeable portion of the entry fee may be deductible in the year paid as a pre-paid medical expense tax deduction.
For refundable entry fees, common refund amounts are 50, 75, and 90 percent. Entry fee refunds are typically payable to the resident if they ever move out, or to the resident’s estate in the event of death, no matter how many years the resident has lived in the community. The stipulations for receiving a refund can vary from one community to another, so it is important to carefully read your contract details.
>> Related: Learn more about CCRC residency contracts
How do people pay for their CCRC entry fee?
There are a number of different ways that people fund their CCRC entry fee. A few of the most common tactics include:
- Savings: Depending on how much wealth you have accumulated over the years, you may be able to cover the entry fee cost with a portion of your retirement savings.
- Proceeds from selling the home: Many seniors who have lived in their current home for a number of years have either built up substantial equity or paid off the house in full. The proceeds of the sale are commonly used to cover some or all of the CCRC entry fee.
- Bridge loan: There are situations where the timing may be off between when a would-be CCRC is ready to move to a CCRC, and when the resident’s home sells and closes. In these cases, a bridge loan can in essence give the person an advance on the home sale proceeds so that they can go forward with their CCRC move even before their prior home sale is completed. There are companies such as Second Act Financial* that specialize in providing bridge loans for CCRC residents.
- Additional options: There are other ways to cover the cost of a CCRC entry fee as well, such as sale-leaseback programs. This is where a company buys your home from you at fair market value (FMV), paying out the home’s equity to you, and then you rent the home back from them until the home sells.
>> Related: Senior Living Pricing: Snapshot of Average Cost of Senior Living
A different way of looking at entry fees
If you are looking at a CCRC that requires an entry fee, the dollar figure might appear financially daunting at first glance. Upon closer examination, however, a CCRC entry fee is more or less an investment in your peace of mind; knowing you have a plan in place if things change in the future. This can alleviate stress for both you and your loved ones.
No matter which entry fee financing approach you are considering, it is wise to talk with an experienced financial advisor and accountant before making a decision and signing a CCRC contract. These professionals can give you tailored guidance based on your unique financial situation so ensure you are making the best choice.
*We are not compensated by Second Act Financial Services, and this should not be considered a recommendation. Talk with your own financial professional before making any decisions.
FREE Detailed Profile Reports on CCRCs/Life Plan Communities