Life Plan Communities and the Benefits of an Entry Fee

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

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

What is a Life Plan Community?

Many people think community living is only about receiving care, but that’s not entirely accurate. Life Plan Communities (also known as a continuing care retirement community or a CCRC) are about every resident living life to its fullest each day while having the peace of mind that advanced wellness services and continuing care options are available on the same campus if needs change.

A Life Plan Community isn’t just a “place.” Rather, it’s a lifestyle-infused environment where people can continue enjoying their independent lifestyle while having easy access to fresh and healthy foods, culture, arts and a holistic approach to wellness that supports the whole individual.

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

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

Entrance fees at a Life Plan Community cover the entire continuum of care, so healthy and active people 62 years of age and older can enter the community as part of independent living and, if necessary, move to advanced levels of living without relocating to another community.

“People who are planners want security and peace of mind,” Robbi Hogan, director of sales at Redwood Terrace, a HumanGood community in Escondido, California, says. “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.” 

People typically encounter two types of entrance fees:

• Nonrebatable entrance fees carry a smaller price tag, but they generally don’t allow money to be returned to a resident or their family in the event of a move or death after five years of living in the community.

• Rebatable entrance fees may be higher in cost, but a portion of the entrance fee — anywhere from 50-90%, depending on the type of contract offered — can be returned upon a person moving or passing away.

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

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

Is your Life Plan 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, a 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 Life Plan Communities that provide health care services.

What are the benefits of entrance fees for retirement communities?

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 says. However, people who choose a Life Plan Community before they need a higher level of living see the greatest financial benefits.

Low Resident Turnover

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. Let’s take a closer look at how entrance fees support those who call the community home.

Peace of Mind

A one-time entrance fee locks in your access to other levels of living and guarantees priority access should your needs change — often at contracted rates that are lower than the current market rate. 

This also adds some predictability to your future costs. You don’t have to worry about what will happen if your care needs change and how it will impact your family because that’s already taken care of. 

Additionally, because entrance fees lower monthly fees, you’ll enjoy lower and more predictable monthly payments (no matter what level of living you require) that are often lower than the cost of many other communities.

Community Investment

Communities with entrance fees are also often excellent stewards of that money. This means that while monthly fees cover daily operations, entrance fees contribute to the overall maintenance and improvement of the community, ensuring it’s always well-maintained and beautiful.

Entrance fees also enable the community to invest in capital projects and ensure new amenities are added on a consistent basis to keep the community running and looking its best. This means that while you’re living in the community, you’ll directly benefit from the investment of your entrance fee. In traditional communities without entrance fees, the condition of the community and the amenities it offers are often tied to market demand and the economy.

Reassurance as Financial Circumstances Change

Some people deemed financially qualified to live in a Life Plan Community still worry about depleting their assets. 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 they outlive their financial assets through no fault of their own.

For example, HumanGood’s benevolence fund supports residents who have outlived their financial resources and can’t pay their monthly fees. The fund provides support for these individuals and ensures they can remain in their homes.

What steps do I need to take to see if I can afford a Life Plan Community?

Just like any other plan for the future, planning for a Life Plan Community requires a proactive approach. Here are the steps you can take to determine if a Life Plan Community is a good financial fit for you and how to prepare:

Assess Your Finances

To get where you hope to be, you first need to evaluate where you are right now. Take a thorough look at your debts, income, expenses, savings and assets to understand your current financial standing. Then, compare this information to where you want to be and what your timeline is. 

It’s also beneficial to meet with a financial advisor to discuss your plans, finances and what you’re willing to do to achieve your goals. It can be uncomfortable to look at or even discuss finances, but it’s important to be honest and open with your financial advisor because they can help you take realistic steps toward your goals.

Develop Your Future Plan

Take some time to think about where you want to be in the future. Do you want to continue working? Where do you want to live? Do you want to pursue a destination retirement?

Building a detailed plan for how you envision your future will assist you with determining the specific things you need to do now to achieve your goals. For example, researching the costs of vacations you may want to take, your estimated future health care needs and the costs of Life Plan Communities will help build a complete picture of what you will need to set aside to make these plans a reality. 

Build Your Budget

Once you’ve determined where you are with your current finances and where you want to be in the future, it’s time to build your budget. While there isn’t a budget that works for everyone, there are some key things you’ll want to take into consideration.

First, make sure your budget is realistic. Cutting out every unnecessary expense and living on a shoestring budget may help you achieve your goals, but does it truly lead to an enjoyable life? Don’t underestimate your quality of life when creating your budget. 

It can help to evaluate your budget each month and assess where you’re going over your budget and why. It can also help to evaluate how a Life Plan Community can help you better stick to your budget. Remember that many of the expenses that you’re paying for right now, such as meals, entertainment and your mortgage or rent, are all a part of the Life Plan Community’s monthly fee.

Many people are excited about spending the next chapter of their lives in a Life Plan Community but have questions about the cost and how to pay for it — and they’re surprised to learn it’s much more affordable than they think.

Learn more about the financial side of Life Plan Communities 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.