Continuing Care Retirement Communities: A Primer

When you look outside of your own area for a retirement locale, there's nothing more complicated than picking the right community. I've thought about it often--for my wife and I and for others--but it never gets any easier.

For a growing number of Americans, the idea of a continuing care retirement community holds considerable appeal. In one setting, you can shift from independent living to nursing care as your healthcare needs change. You can also live there with a spouse or partner.

There are nearly 2,000 continuing care retirement communities across the U.S., with California, Ohio, and Pennsylvania having the highest concentration of these communities, according to McKnight's Senior Living. Some 80% of those communities are run by nonprofit organizations; they range in size from 100 to more than 750 units. They are also known as "life plan" communities.

Though an appealing one-stop shopping decision for many, weighing the pros and cons and conducting the necessary research requires a good deal of homework. There are layers of costs, and the quality of a community can be hard to judge. You're basically making a financial commitment to live in the facility for the rest of your life, so there's much to consider.

Costs While there's a lot of variation in price by region and type of facility--the more bells and whistles a facility offers, the more you'll pay--there are two major expenses involved: an upfront deposit and a monthly fee, which covers all services.

Generally, the more service you require, the higher the monthly fee. According to Caring.com, the fees range from $500 to $4,000 per month. The least-expensive arrangement is independent living, and the most costly is skilled nursing care.

These communities also require an upfront deposit to reserve a space, which can range from $20,000 to $1 million. Keep in mind, though, that a facility contract may only guarantee you the right to hold a space in the community during your lifetime. You may not own your room or unit.

With a continuing care retirement community, you're entering into what the industry calls a "life care contract," which has lots of clauses in it. Contracts typically cover meals, housekeeping, and most basic services, although additional support like home care for people in independent living, may be an additional cost. Costs vary depending on the size of your unit, the area, and the range of services you require.

For example, the facility that I toured for my father not only had regular social and exercise activities, but it had a chapel, exercise room, common areas, some outside transportation, and a staffed front desk. Many of the residents still had cars, so they were able to come and go as they pleased. If residents need physical or occupational therapy, it was provided within the community, but at an extra charge.

The Social Setting Whether run by a nonprofit, a religious community, or a company specializing in long-term care, these facilities all have the same goal: providing a safe, service-oriented community for those people who want to live there for the rest of their lives.

This means these "intentional" communities will involve seeing and socializing with the same people every day. For those who like to eat, recreate, and often worship together, the setting is ideal.

But not everyone is a good fit for a continuing care retirement community. Unless you know people living there--or make friends easily--it could be challenging for those who are not socially inclined to adapt. Those who are leaving an established community could feel isolated in a new setting.

"A CCRC could be a nightmare if you're not a social person," says Carolyn McClanahan, a doctor and financial planner with Life Planning Partners based in Jacksonville, Florida. "Some people like social interaction and some like to be private."

Prime Considerations How do you know if a continuing care retirement community is right for you? First of all, you need to ask yourself if you see yourself living in that environment. Although you can venture out beyond the walls of the facility, you're essentially living in a self-contained community.

Your health is also important. You should make the decision about community living while you're healthy, McClanahan advises.

"Talk about it when you're well, preferably when you're in your 50s," she suggests. "Some communities have waiting lists."

Tour a number of facilities and ask about staffing, which is often a problem in long-term care facilities. Go to Medicare.gov to see the rating on the nursing-home section of the community.

Ask people in your area if they've known anyone who has moved into any facilities you're considering and what their experience was like. Doctors and elder law attorneys may also be sources for referrals.

At the very least, get some idea of how the contract works and what your projected costs will be over time. Know how you can get a return of payment if the arrangement doesn't work out.

Some may not be able to afford living in a facility, so another essential question is whether you'd prefer to age in place--in your own home instead of moving. That might require additional home and medical services, but you wouldn't have to move. In many cases, aging in place is the most workable, comfortable, and least costly solution, McClanahan has found.

Safeguards A few caveats when vetting facilities:

1. There are no required government ratings for the independent living areas of a continuing care retirement community. Although Medicare evaluates the skilled nursing wings, you're often on your own when it comes to evaluating independent living units.
2. You get what you pay for. There's no such thing as a bargain. While some regions are definitely cheaper than others, you have to weigh a number of factors when comparing facilities, from food service to staffing.
3. You can't really tell how the quality of life will be until you live in one for a while. One woman I talked to lived in a facility for a few months, didn't like it, and got depressed. Fortunately, there was a grace period, so she wasn't entirely locked into the community financially. When considering a facility, always ask how you can get your money back if it's not a good fit.
4. The contracts are complex. Make sure you get them reviewed by your lawyer and CPA. Even certified financial planners can help you walk through these documents, which come in several varieties.
5. Understand how a facility impacts your estate plan. If you're planning to give your family money, know the tax and estate-planning implications of doing so while living in a facility. Giving money away while in a continuing care retirement community may not only impair your ability to pay future bills, but it may void your life care contract, notes McClanahan.
6. Know your own financial resources. The costs of independent living at a continuing care retirement community are not covered by Medicaid or Medicare, so you'll have to dig into your own savings to pay the bills. Be sure to also calculate a worst-case estimate of how much your monthly costs will increase if you need to move into memory or nursing care. Note that Medicare only covers a limited amount of skilled nursing care and no long-term expenses, except for some hospice care. There is no unskilled or semiskilled institutional nursing care covered under Medicare. Medicaid, meanwhile, can cover nursing home expenses, but only if you qualify for strict poverty-level income guidelines. That means you need to have exhausted most of your financial resources (homes are exempt) before you can consider qualifying for Medicaid. The program also won't allow you to transfer assets in a short period of time to qualify for coverage.
7. Review the financial stability of the entity behind the facility. Have an accountant, financial planner, or lawyer look at its audited financial statements. What happens in the event of financial failure? If an entity goes out of business, it's not like in banking where the FDIC immediately steps in to take over or merge it with another institution. You have to check your contract carefully. Another company may buy your facility or you may be entitled to a partial refund. Discuss all worst-case scenarios with your accountant or lawyer.

When you're ready to start checking out facilities, a good search engine can be found on Caring.com. Enter ZIP codes or cities into the tool and a list of communities will be generated. The AARP is a good source for background information.

Finally, remember that while continuing care retirement communities offer a suite of services, they are not for everyone. You should talk to people who live there--and if possible, some who decided not to live there--before you make a commitment.

John F. Wasik is a freelance columnist for Morningstar.com and author of 16 books, including "Lightning Strikes: Timeless Lessons in Creativity from the Life and Work of Nikola Tesla." The views expressed in this article do not necessarily reflect the views of Morningstar.com.