Today a growing number of Americans are faced with a complex set of personal and financial decisions about how and where they want to live as they age. An important factor in these decisions is how to address the significant risk posed by long term care expenses. The three most common strategies to allow most people to manage the issue of long term care and aging are:
- Use all your assets – For some, there are few affordable options, and they rely on either family support or Medicaid to provide their long term care. Medicaid is the government provided ‘safety net’ form of health insurance and long term care protection. Eligibility for Medicaid requires that you have very little or no ‘countable assets’ and your sources of income will be scrutinized as well. While a spouse who does not need long term care may retain some income and assets for their own use, relying on Medicaid may either require specific planning (well in advance) or spending down nearly all of your assets before it becomes available.
- Protect assets with insurance – For others, purchasing long term care insurance (or hybrid long term care insurance) to manage the risk of long term care expenses is an appealing strategy – particularly for those who wish to stay in their homes as long as possible. According to a survey conducted by AARP, 90% of people age 65 or older want to ‘age in place’ (in their home). However, the reality is that this strategy can quickly become impractical, dangerous, and isolating over time. For those that plan to age in place, long term care insurance can become a critical piece of their financial picture. The key is to plan in advance, because premiums can be expensive, and will likely increase over time. It is also important to keep in mind that not everyone will qualify for long term care insurance, and to make sure that you meet the health requirements for a long term care insurance policy.
- Have more than enough assets – For those who have a ‘critical mass’ of assets, it is possible to pay out of pocket for long term care expenses without jeopardizing the standard of living for a spouse, or compromising other financial objectives. While there is no one size fits all ‘number’ at which point you would pay out of pocket, generally investable assets of $2 Million or more, and a high ratio of guaranteed sources of income to living expenses are needed to consider this option.
There is a fourth strategy however, that for many individuals or couples can provide answers to many of these questions all at once.
- Live where you get your care – For those who want a single solution to meet their personal and financial situation in retirement, a Continuing Care Retirement Community (CCRC) can provide an appropriate solution to manage long term care treatment and expenses, while providing a living arrangement based on their level of independence and activity. So – what exactly is a CCRC and how do you evaluate it. We will analyze this question in different articles within our ‘classroom’ over time. For now let’s start with: What is a CCRC?
A CCRC is an age-restricted community that offers a continuum of care and living arrangements all on the same campus. Typically new residents must be age 65 or older; and living arrangements range from independent-living units, to assisted-living units, and then to skilled-nursing facilities.
These communities attract seniors who desire to live independently initially, but also want to know that they can receive needed care without leaving the community. This arrangement allows the resident to stay close to their spouse and friends as they move through different levels of care – and you know in advance about the quality, the options, and the location of the care you will receive.
CCRC’s often require a large entrance fee up front, but these vary widely depending on the community ($50,000-$1,000,000+). In addition, residents pay a monthly fee. Typically, the entrance fee may be returned in whole or in part when the resident leaves the CCRC, and another resident is found to occupy the unit. Once the new resident pays the entrance fee the former resident (or his or her estate) receives a refund. In exchange for the entrance fee, residents of the CCRC gain access to the community and the various levels of care, i.e. assisted living and skilled-nursing facilities.
As residents move from independent living to different levels of care, the monthly fee may increase – but not always (this also depends on the community). Typically, the larger the entrance fee, the lower the increase in monthly expenses for higher levels of care. Whether the monthly fee increases or not, residents generally pay less than the full-market rate for the care that they receive. This fee structure, allows the resident to shift some of risk of long term care expenses to the community. Residents who do need care are essentially subsidized by residents who never need care. As a result CCRCs usually require prospective residents to submit financial and health information before they are admitted, and like purchasing insurance, it is better to plan this decision before a disqualifying health condition arises such as Alzheimer’s. It is possible for an applicant to be denied admittance due to health issues.
Also similar to a traditional insurance policy, the ability of the facility to provide care when needed depends on its financial stability, and its ‘claims’. If a higher than expected number of residents needs care, the facility may run into financial difficulty. As a result, it is important to assess the financial strength of a community before entering.
CCRCs are also concerned that residents will run out of money and no longer be able to afford the monthly fee. To avoid the possibility that residents may become financially unable to stay in the community, facilities require prospective residents to submit financial information. An applicant may be denied admittance if the facility believes their assets and income will be depleted before death. While some communities establish reserves that are available to residents who can no longer afford to pay the monthly fee, this is not guaranteed and some communities may not have funds available.
If a CCRC is an option that you are considering as a part of your retirement plan, it is essential to develop a plan. The planning process allows you to decide on a retirement arrangement that is best suited to your needs – whether it is a CCRC or not. Without planning, the questions, complexity, time, and analysis that are required can be overwhelming – and many people may either avoid making a decision all together, or make a less than informed decision that doesn’t fit with their situation. For those who feel that a CCRC can provide a dependable living arrangement in retirement, and that want to explore the pros and cons of a CCRC – start the planning process sooner rather than later.
Woodstone Financial, LLC is a fee-only financial planning and investment management firm located in Asheville, North Carolina. Contact us to learn more about our services, including retirement planning and CCRC planning.