Many entry fee retirement communities will offer residents the choice of a refundable entry fee as an alternative to their standard, non-refundable contract. The trade-off: a refundable entry fee will generally be higher than the entry fee for the same residential unit under the standard contract.

Prospective residents of continuing care retirement communities offering such a refund often face a dilemma: pay the higher entry fee but have the peace of mind of knowing that some- or all- of the entry fee will be refunded if the resident moves out of the community, or at death. (In the case of the latter the refund would go to the heirs.) Alternatively, the resident could choose to save money up-front while knowing that no portion of the entry fee will be refunded.

Before we further analyze this choice I should mention a couple of important points regarding refundable entry fees in general. First, non-refundable entry fee contracts often refund some portion of a resident’s entry fee if either of the above described events takes place within the first couple of years. (The actual length of time varies from one community to another.) In this case the refundable contract would only be applicable for those residents who desire to receive a refund regardless of how long they live in the community. If the prospective resident’s concern is, for instance, that they move into the retirement community and realize six months later it isn’t what they hoped then they may not need to opt for a refundable contract to protect against this.

Second, any prospective resident of a CCRC who is considering a refundable entry fee should be very clear on what the stipulations are for receiving such a refund. For example, if the resident were to choose to move out of the community in five years does the contract state that their unit has to be re-occupied before the refund will be paid? Also, what factors could impact the amount of the refund? Generally, if there are any expenses owed to the retirement community by the resident at the time in which they vacate their unit, healthcare expenses or otherwise, it will be deducted from the refundable amount.

I’m not suggesting that these are ill-intentioned features of a refundable contract. In fact, such stipulations may well contribute to a more financially stable retirement community, which is ultimately a positive for residents. I’m only suggesting that prospective residents should be aware of any such stipulations before making a decision about whether or not to choose a refundable entry fee contract.

Be sure to see my blog next week for Part II of this post where I will summarize comparative projections created in our own propriety Financial Calculator, available for inclusion on CCRCs’ websites, to help provide some insights as the types of scenarios whereby opting for a refundable entry fee might make the most sense.

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