So you’ve researched options, visited several communities, and picked the life plan community (also called a continuing care retirement community or CCRC) that feels right for you. One remaining hurdle for many people is how to pay the entry fee.
Most life plan communities require an entrance fee to fund the range of services available now and in the future as care needs change. Many residents fund this fee by selling their home. When a house sells quickly, this is often the most straightforward approach. But depending on the local real estate market and the condition of the property, a sale can take longer than expected. Waiting too long carries a risk: if your health declines before you complete the move, you may no longer meet the community’s entry requirements.
Other entry fee funding options at a life plan community
If selling your home quickly isn’t realistic, here are three alternative methods you might consider — alone or in combination — to fund the entry fee.
Disclaimer: These are informational options, not financial advice. Consult your own financial and tax advisors before making decisions.
Bridge loans: Some banks and lenders offer short-term bridge loans to cover the entry fee until your home sells. Ask the retirement community if it works with a lender that provides bridge financing; in some cases the community may even subsidize interest. A bridge loan can be a useful stopgap if you expect the sale of your home to close in the near future.
Selling stock: Selling investments can provide cash for the entry fee, but this option requires careful tax and financial consideration. If you rely on the stock for income, or expect to need it in the future, selling may not be appropriate. If you have holdings you don’t plan to use for income, liquidating some shares could cover the fee. After your home sale you could reinvest proceeds or place them in a more conservative account.
- Capital gains tax is a key consideration. If a holding has little or no gain, taxes may be minimal. If you have owned shares more than a year, you will generally pay long-term capital gains rates; holdings under a year are taxed as ordinary income. If you purchased shares at different times, you may be able to select which lots to sell, allowing you to sell shares with smaller gains and retain higher-appreciated lots. Keep in mind that realizing gains could affect your overall tax bracket for the year.
- Many residents qualify to deduct a portion of the entry fee or monthly fees as a pre-paid medical expense when permitted by tax rules; deductions of 20 to 40 percent are not uncommon in qualifying situations. If you qualify for such deductions, they can help offset capital gains taxes from selling investments. Ask the retirement community for documentation on potential tax deductions and review it with your tax advisor.
Reverse mortgage: A reverse mortgage converts home equity into cash without monthly payments while you live in the home. The loan becomes due when the home is sold or the last borrower permanently leaves the property. Typically, the older you are and the more principal you have in the home, the larger the loan amount available.
Using a reverse mortgage to pay an entry fee has an important timing consideration: after you permanently move out, most lenders allow up to 12 months to sell the home and repay the loan. For co-borrowers, the period usually begins when the second borrower leaves permanently. This approach can work if you expect the house to sell within a year but don’t want to rush the move or risk losing eligibility for the community due to a health change before the sale completes.
One practical strategy is to remain living in your home while moving belongings to the community and starting as a resident there. You would pay the community’s monthly fee and have access to its amenities and services, and the community would treat you as a full-time resident. Meanwhile, you would retain the primary residence status and delay the reverse mortgage repayment clock, giving more time to sell the house without sacrificing access to community services.
Making the right life plan community choice
Choosing a life plan community involves many factors, and financing the entry fee is a major one. Talk with your financial advisor and tax professional to evaluate which funding option — selling your home, a bridge loan, selling investments, or a reverse mortgage — best fits your financial situation and long-term needs. Careful planning can help you secure the community you want while protecting your financial security.
Note: The examples and options described here are for informational purposes and not a recommendation or solicitation. Consult qualified professionals for guidance specific to your situation.