It’s the first-and most difficult question that comes up in retirement planning: how much will it cost? There are as many answers as there are different ways to retire–depending on where you plan to retire, how much health care and personal services you end up needing, and how long you live.
Age-restricted or 55+ senior apartments are just like any other kind of master-planned community where occupants own their own homes. Accommodations run the gamut from condos to mobile homes, large vacation-style homes to high-rise apartments, and costs vary accordingly. As in any other kind of real estate investment, prices depend on the size of the unit purchased, the amenities offered and of course, location.
In addition to the cost of the home itself, the best retirement communities usually charge fees for exterior maintenance, recreational amenities and services, running anywhere from a few hundred dollars to thousands of dollars a month, depending on the level of amenities offered. The good news: in the current real estate slump, more and more communities are offering incentives, like pricing adjustments or help selling your old home.
At first glance, independent living communities may look like 55+ retirement communities, with active, healthy residents taking advantage of amenities like tennis, yoga or golf. But many communities function more like all-inclusive resorts than conventional real estate, meaning a single monthly rental fee includes not only housing, but also:
Some communities, like Holiday Retirement, offer month-to-month lease fees while others require a commitment; some charge buy-in fees, while a few require purchase of a home in addition to monthly fees for services. The size of this monthly fee varies widely, depending on the size of the unit and the location of the community. Holiday, for instance, uses a monthly average of $2600 in its online cost-of-living calculator, but actual retirement living costs for a one bedroom can vary by as much as $5000 across the country, closely tracking regional real estate values and cost of living.
Independent living communities can be a bargain, especially compared with assisted living, and in some cases they’re even less expensive than living at home. When evaluating the cost of retirement communities, be sure to factor in all of the expenses in your current location-from mortgage payments to taxes, utilities, insurance, groceries and recreation.
Most complex of all are retirement living costs at continuing care communities (CCRCs). Contracts, fees and financial agreements may vary from community to community, but one fact is universally true: joining a continuing care retirement community requires a significant financial commitment.
The best retirement communities require a substantial entrance fee up front, ranging from $20,000 for a rental agreement to as much as half a million dollars for a purchase agreement. This fee guarantees the resident access to a “continuum of care” for the rest of his or her life. CCRCs have three different kinds of living arrangements: independent care (also sometimes called “active retirement”), assisted living and skilled nursing. As a resident’s needs change, he or she can progress through levels of care without ever having to leave the community. This security comes at a price, however. In addition to the entrance fee, there’s a monthly fee to cover meals, housekeeping, utilities, transportation and amenties. This fee is typically $1000 or more, depending on the resident’s service plan.
CCRCs use one of three different cost structures, each of which affects the size of both entrance and monthly fees. Under an extensive or life care contract, residents get unlimited lifetime access to health care without an increase in monthly fees once a higher level of care becomes necessary. Because the community is assuming the financial risk, the senior pays more up front in the form of a large entrance fee.
Under a modified or continuing care agreement, entrance fees may be smaller, but access to health care services or skilled nursing is limited to a specified number of days, after which residents pay more each month. This type of contract is best for seniors who don’t see their health care situation changing significantly-and who can afford to pay extra if it does. Finally, A few CCRCs operate like independent living communities, with a fee-for-service contract in which residents pay only for the services they need. There may be little or no entrance fee involved, but this option can be risky: if your health takes a turn for the worse, skilled nursing can cost up to $250 a day, which could quickly drain the most ample nest egg.
One way to cushion the blow of retirement living costs: think of them as an investment. In many cases, those sizable CCRC fees are refundable-meaning a portion comes back to the resident (if he or she decides to leave the community) or to his or her estate (after the resident’s death). Returnable entrance fees are higher, but they guarantee that the money spent to gain entrance to a community is an actual investment with cash value for the senior’s heirs. With occupancy rates down, some CCRCs, like Mirabella in Seattle, are promoting 90% returnable entrance fees.
Likewise, any purchase of real estate, whether in a 55+ retirement community or in an independent living community, has potential value as an investment. Your home may appreciate in value over the years, creating potential profit for your estate. If you need to shift to a higher level of care, a home in a retirement community can be leveraged to help pay costs for the move.
Reframing retirement living costs as an investment means doing your homework. To make an informed decision about moving into a CCRC, be especially careful to check the community’s financial health; only a community in good financial standing will be able to fulfill its contractual obligations to you or your estate. Legally, applicants are allowed to review a CCRC’s audited financial statements and receive periodic updates.
When buying real estate in a 55+ or independent living community, be sure to keep an eye on future property values. Buying into a community in a remote area seems like a bargain in today’s real estate market, but it may not appreciate in value the way a more popular location will.
Learn more about retirement communities.
Update: January 2018