CCRC Retirement Communities and the Benefits of an Entry Fee

Financial Planning   |   By HumanGood

What you need to know about CCRC retirement communities and entrance fees

When you begin to research community living options, it’s easy to become inundated with financial details. If you’re unclear about entrance fees when it comes to senior living options, you aren’t alone. Many adults are unclear about what an entrance fee for a retirement community is really for. 

It may seem counterintuitive, but entrance fees can ultimately make retirement communities more affordable and provide greater predictability in your month-to-month fees. Here’s what you need to know about entrance fees.

What are entrance fees for retirement communities, and how do they work?

The entrance fee is a sum of money paid upfront to secure a place in the community. This upfront investment can actually lower your monthly fee, which covers services such as maintenance, housekeeping, meals, activities, utilities and transportation.

Entrance fees at a Life Plan Community (also known as a continuing care retirement community or CCRC) cover the entire continuum of care, so healthy and active seniors can enter the community as part of independent living and, if necessary, move to more advanced levels of care without having to relocate to another community.

“People who are planners want security and peace of mind,” said Robbi Hogan, director of sales at Redwood Terrace, a HumanGood community in Escondido, California. “They want to be a part of a community for the rest of their lives. In a month-to-month, it can be a revolving door of people moving in and out. There’s a sense of stability in an entrance fee community.” 

Seniors typically encounter two types of entrance fees:

  • Non-refundable entrance fees carry a smaller price tag, but they generally don’t allow money to be returned to a senior or his or her family in the event of a move or death after five years of living in the community.
  • Refundable entrance fees are higher in cost, but a portion of the entrance fee is rebatable. Depending on the type of contract offered at a community, anywhere from 50%-90% of the entrance fee can be returned upon a senior moving or passing away.

At HumanGood communities, rebatable plans come with a roughly 60% price premium, but they allow for estate planning, said Daniel S. Ogus, executive vice president and chief operating officer of HumanGood.

“Refundable plans are there if you want to make sure there’s something left for your heirs,” Ogus said.

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Is your retirement community entrance fee tax-deductible?

Whether rebatable or not, entrance fees are based on apartment size, location, view and other residence-specific amenities. Incoming residents generally pay entrance and monthly fees through a combination of savings, income from investments and pension or retirement plans, and proceeds from the sale of a home. Residents generally don’t pay property taxes on their community apartments, and they also qualify for sizable tax breaks on portions of their entrance and monthly fees in retirement communities that provide health care services.

What are the benefits of retirement community entrance fees?

Contrary to what many may think, living in a community with an entrance fee is affordable for almost anyone who’s owned a home, Ogus said. But seniors who choose a Life Plan Community before they need a higher level of care experience the greatest financial benefits.

Entrance fees offer peace of mind and predictability to adults and their loved ones. In addition, communities that have an entrance fee typically have very low resident turnover. This means that the neighbors you meet when you first move in will likely be your neighbors for a long time, making it even easier to create meaningful relationships with those around you.

Communities with entrance fees are also often excellent stewards of that money. This means that while monthly fees cover daily operations, entrance fees help the community to invest in capital projects and new amenities to keep the community running and looking its best. 

Some seniors deemed financially qualified to live in a Life Plan Community still worry about depleting their assets. So, be sure to ask if the community has a benevolence plan. Many communities owned and operated by nonprofits such as HumanGood provide financial assistance to residents who need it if, through no fault of their own, they outlive their financial assets.

What steps do I need to take to see if I can afford a LPC?

If you’re considering making the move to a Life Plan Community, you may have some questions about the costs involved. We’re here to provide you with all the information you need in our comprehensive guide.

Learn more about the financial side of senior living by downloading our free resource, “The Complete Guide to the Costs of Senior Living.” You can discover more information about topics ranging from learning the benefits of a Life Plan Community to understanding monthly fees to interpreting contract types.

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