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Financial Planning for Retirement
in Continuing Care Retirement Communities:
What You Don’t Know Can Hurt You

By Lillian L. Hyatt, M.S.W., and a Resident of a CCRC

Excerpted from the Winter 2004 The CANHR Advocate newsletter

Applicants to Continuing Care Retirement Communities (CCRCs) are usually not aware of the complex financial structure of CCRCs that offer life care, which renders them unprepared to plan realistically for their secure retirement. For example, in 2004, a California owner of several not–for–profit CCRCs informed the residents in those facilities that there would be $52.5 million in upgrades made to the facility in order to keep the building "safe, comfortable and marketable." The owner then proposed that the upgrades be paid for with increased entrance fees, aggressive fundraising drives among the residents and a $43 million dollar loan in tax–free bonds. Residents would be asked to contribute about $3 million so that the CCRC owner would have less debt to services, and thus be able to keep monthly care fees down. The implication was that if residents did not make voluntary contributions, their monthly care fees would be raised considerably to cover the cost of servicing the debt. When newer residents were asked if any mention of these impending construction costs were included in the information they had received when they applied for admission, they replied that they had been told nothing at all.

Another thorny issue presents itself if the provider owns several other CCRCs. Should a portion of a resident’s monthly care fee be used for improving another facility in the chain? Providers justify this practice by claiming that specific facilities have difficult years, and there is a financial safety factor in being part of a multi–facility provider. However, sometimes the opposite is true. In 2003, one multi–facility provider in California had an outbreak of E. Coli in one of its facilities due to contaminated spinach. Many residents became ill, several residents died and the facility was sued. Residents in the provider’s other facilities were never informed that a portion of their monthly care fees was being used to pay attorneys’ fees and settlement costs.

Often, after receiving annual increases for a number of years, residents suddenly discover that the monthly care fee that was once affordable, and well within their projected financial plan when they moved into the facility, now exceeds the income they receive from invested capital. Residents could end up paying 2.5 times more than their original estimates and be forced to deplete their resources. Facilities with life care contracts promise that residents can rely on a state fund they’ve set aside in order to support residents whose resources are exhausted. However, that becomes questionable, as people are living longer than they were before the fund was created. A related problem is that residents who are asked to support such a fund with donations may be unable to contribute to the fund when they need that money to support their own care needs (i.e., some older residents need to hire a personal attendant or aide if they wish to remain in their own apartment).

According to information supplied by the Continuing Care Contracts Branch of the Department of Social Services, the percent of increase in monthly care fees for the 18 CCRCs in California that provided life care in 2003 ranged from 4% to 8%. These facilities are exempted by state law from any local rent control ordinances. Many residents remain in these facilities for 20 years or more, and unless they are extremely successful investors, much of their capital will be expended.

There are many other financial planning considerations that should be taken into account in regards to CCRCs, but those mentioned above should help guide the questions that a potential resident should ask a facility’s marketing director.