Housing • July 13th, 2020

How Retirement Communities Work

Gail Kellner

Key Takeaways
  • Senior living can include independent living, assisted living, or nursing home care.
  • Ask questions before choosing any retirement facility.
  • Senior living is expensive: plan ahead if possible.

Your kids have grown up and are on their own. You don’t especially enjoy yard work, or need all of this space. Is it time to consider moving to some sort of senior living community? What’s the difference between senior communities, retirement communities, assisted living, etc.? How do you choose?

We’ll look at the definitions of the different types of retirement living and how to figure out which one may be right for you.

Independent Living

These are often referred to as “Over 55” housing, active older adult communities, or senior apartments. This option is best for people who don’t require any additional medical care and can take care of their daily living activities. Facilities can vary from apartments to free-standing condos.

These communities can be great for maintaining or boosting your social network. There are often a lot of amenities, community activities, and perks to these places. Everyone is at the same stage in their lives, so it’s easy to connect and make friends. Social connection is linked to better health and decreased depression in older adults (National Institute on Aging).

There’s a host of activities such as holiday gatherings, movie nights, arts and crafts, and fitness centers. These types of communities can also offer meal services, daily housekeeping, and laundry services.

What’s the downside? They can be quite expensive. There’s often a buy-in, or downpayment, as you would have on a house or apartment. Depending on the number of bedrooms and the location of the community, monthly fees can range from $1,500 to $10,000 a month. If you want add-on services such as meal services or laundry, that will be extra. There are often price increases every year, to account for inflation.

One last thing to consider is what happens if your medical needs increase, and independent living can no longer accommodate you. You’ll have to find another option, often an assisted-living facility.

Tip: Determining your budget and lifestyle preferences ahead of time can help you narrow down which type of retirement community will be best for you.

Assisted Living

Assisted living communities may be for you if you don’t need a lot of medical care, just some assistance with bathing, taking medications or help getting dressed. You’ll still live in your own space, a one or two bedroom unit, and you can elect to have meals and housekeeping services added on (for an additional fee). Assisted living has staff available 24/7 to assist residents. They often host get-togethers and activities, to keep residents engaged and connected.

Assisted living is more expensive than independent living because of the extra level of care. In 2020, the average cost for a one-bedroom unit ranged from $2,803 a month (Oklahoma) to $6,700 a month (District of Columbia).

These facilities can also provide transportation to doctor’s appointments, dentist appointments, shopping, or other activities. Assisted living communities strive to keep residents as independent as possible while providing some basic support. Different states have different licensing requirements, so check with your state’s guidelines for more information.

Nursing Homes

Older adults who can no longer care for themselves may need a nursing home. Nursing homes provide 24/7 medical care for seniors who are cognitively, medically, or functionally impaired. Residents of nursing homes are often bed-ridden or wheelchair-bound.

Skilled nursing home care is expensive. The average annual cost in 2019 was $102,200, but it varies from $61,685 (Texas) to $369,015 (Alaska).

Medicare Part A pays for only 20 days of nursing home care and up to 80% of costs for the next 80 days. After 100 days, they pay nothing. Medicare also requires that the patient must require skilled care that they cannot get at home (with home nursing visits). Some nursing homes won’t take Medicare patients at all. Often, there are lengthy waiting lists to get someone into a nursing home.

Ideally, you’ll plan for a possible nursing home stay well ahead of time, with a combination of pensions, long-term care insurance, health insurance, and retirement savings. Permanent life insurance can also be an excellent way to plan ahead for health care costs. The advantage here is that you can get a long-term care rider attached to the policy, and the cash value can be used to help pay for some health care costs. Or, if you’re concerned about qualifying for Medicaid, you can convert the policy into a stand-alone long term care plan.

Continuing Care

If it’s occurring to you now that retirement seems to involve a lot of moving around, depending on your health and self-care needs, a continuing care retirement community (CCRC) has the solution. These facilities provide a wide variety of care levels, so that residents can stay in the same place as they age. If their health takes a turn, they don’t have to deal with the additional stress of finding a new home. They range from independent living apartments to full-scale skilled nursing home care.

However, such peace of mind comes at a high cost. The average buy-in for a CCRC is $329,000, but it can be as high as $1 million. Once you’ve put down the initial payment, monthly fees are between $2,000 and $4,000 a month.

Tip: When you visit, remember to focus on the location, staff, facilities, and residents to make sure they align with your lifestyle preferences.

Understanding a CCRC contract

There are three basic types of CCRC contracts. They are:

  • Type A, also called an extensive life care contract. These types of contracts charge an entry fee and a monthly fee. These types of contracts are the most expensive, but you’ll have guaranteed access to all levels of care.
  • Type B, sometimes called a modified contract. You’ll get a place to stay and all the social amenities, but health care is set up so that you get a limited number of days free. After that, all other health services are billed to you, although at a discounted rate. These also incur entry fees and monthly costs, but at a lower rate than a Type A, all-inclusive contract.
  • Type C. Fees are lower, but any services you require are billed to you. Health care will be charged to you at full market rates.

Ask for details about what’s included at each level of the contract. What services are included? What rate are you charged for medical care? What happens if you need advanced medical care, and your spouse doesn’t?

What to look for when you visit

Deciding where to live or where to place a loved-one is an important decision. What should you look for as you consider different options for retirement facilities?

Location

  • You may be happier if family can easily drop by for a visit.
  • How far away is the nearest hospital?
  • Will you or your loved one have to change doctors?
  • Are community resources easily accessible?

Staff

  • Work in a retirement community is generally low-paid and difficult, so some staff turnover is inevitable. However, if there’s a high amount of staff turnover, that could be a red flag.
  • When are staff available, and how do you contact them?
  • Do they seem pleasant and friendly?
  • What is the ratio of staff to residents?

Facility

  • Does everything look clean and well-maintained?
  • What is the facility’s safety record?
  • Are there complaints? (Check your state for specific complaints; Eldercare.gov has a searchable database)
  • What services and amenities do they offer? How much do they cost?
  • How long has the facility been in business?

Residents

  • Do the residents seem happy and well-cared for?
  • If you can, talk to some residents directly. If they had to do it all again, would they choose this facility?

Bottom Line

Where to live and how to access health care are some of the biggest decisions you’ll make when you retire. Figuring out what kind of senior retirement community is best for you and how to pay for it can be confusing. Talk to a Certified Financial PlannerⓇ to help you find the best solution for you.

Author

Gail Kellner

Gail Kellner lives with her husband, two sons, and various fur-children. She writes about personal finance and insurance mostly, with a little bit of parenting thrown in. She also writes YA Fantasy fiction in her spare time, and her first YA novel will be published later this year.