Choosing to move to a continuing care retirement community (CCRC or “life plan community”) is no doubt a big decision, involving aspects related to housing, lifestyle, healthcare, and certainly finances. For most potential residents of a CCRC, it’s nearly impossible to make a final decision without having a certain level of financial confidence about the choice, taking into consideration the short-term budget implications of the decision, but also the long-term financial impact.
Some people want to calculate their senior living options in terms of long-term impact on their estate, i.e., how much may be left over for the adult children and grandkids. Others may want to compare the cost difference over their lifetime between various housing options. For example, if a CCRC offers a lifecare contract and a fee-for-service contract, a potential resident may want to better understand the potential financial difference over their lifetime based on various assumptions and possible scenarios.
Not only are such financial considerations important to most potential CCRC residents, they also should be important to the industry. If a person is confused or uncertain about the long-term impact that moving to a CCRC will have on their wallet, they will almost certainly delay their decision…or choose another senior living path.
The CCRC financial qualification process
If you are a potential new resident of a CCRC, you may find that you need to be approved via the community’s financial qualification process. Why? Well, just as you want to feel confident that you can afford to live there, the community also wants reasonable assurance of this fact.
Unlike other types of retirement communities, many CCRCs provide financial support if a resident exhausts their assets on care-related expenses, and sometimes even provide such care at a discounted rate if this occurs. The financial qualification process is an important financial risk-management tool for the community as a whole, helping to ensure that, under average circumstances, a prospective resident will not be at an increased risk for requiring financial support down the road.
Many CCRCs even utilize a software program for financial qualification through actuarial consulting firms such as AV Powell and Associates. Ultimately, this process helps protect current residents because managing financial risk is critical to the overall long-term financial well-being of the community.
Understanding your personal financial projections
Although financial qualification is highly important for the CCRC organization from the standpoint of financial risk management, it may not fully answer the other question, as described above.
For example, when I was active in the financial planning business, I had several retired clients who wanted me to prepare financial projections comparing different housing and healthcare scenarios. Financial qualification wasn’t necessarily a concern for them, but they wanted to better understand what the long-term picture may look like. This often involved preparing projections using cost data from two different CCRCs, which was further complicated by the fact that each CCRC offered a different type of residency contract.
If not for the fact that I had a good understanding of how various types of CCRC contracts work, this task would have been nearly impossible for me. But the bigger problem was that financial planning software typically doesn’t account for the nuances of CCRC contracts, so I had to finagle the inputs to try to create as close of a picture as possible for my clients. This was time-consuming and probably wasn’t as accurate as I would have liked.
If you are considering a move to a CCRC and are seeking the services of a financial advisor to help you compare options and/or scenarios, it’s crucial that the advisor has an in-depth knowledge of the CCRC industry, how contracts can differ, and how to appropriately project the potential financial impact over your lifetime.