Recently we asked readers of the myLifeSite blog—consumers and fellow advisors—what their top questions and concerns are about senior living in general and about CCRCs (continuing care retirement communities, also called life plan communities) in particular. We invited suggestions on the topics they most wanted us to cover.
Hundreds of responses helped guide our editorial calendar. The dominant issue was financial clarity and affordability: prospective residents want to understand how ongoing costs will behave and whether they can rely on income and savings to keep pace. Other recurring themes included how to compare and evaluate community options, the best timing to make a move, governance and oversight at communities, how continuing care at home works, and planning for aging alone. We will publish posts addressing each of those areas in the coming months.
In this article we address a question that came up repeatedly: what happens if monthly service fee increases at a CCRC outpace Cost of Living Adjustments (COLA) to Social Security and investment returns over a 10–20 year horizon?
Average annual increases
Historically, average annual increases in monthly service fees at life plan communities have tended to run in the 3–4% range, which is typically a point or two above general consumer inflation measures. That difference is largely structural: life plan communities bundle housing, hospitality, and a continuum of healthcare, and their operating costs are labor- and staff-intensive. Wages, benefits, and healthcare-related expenses often rise faster than the headline consumer price index. As a result, fee adjustments tend to reflect the community’s specific cost structure rather than a simple CPI measure.
This 3–4% figure is a long-term average; in the years immediately following the COVID pandemic, inflation-driven increases were higher in many markets. More recently, fee adjustments across the industry have been averaging in the 4–5% range. It’s important to remember that virtually all retirement and senior living providers raise monthly fees over time. Some rental independent living communities have increased rents more aggressively than many CCRCs because rental models must absorb cost spikes directly through monthly pricing.
One factor that may help explain differences between CCRCs and rental communities is the entrance-fee model used by many life plan communities. Upfront entrance fees typically contribute to operating reserves and long-term care obligations, giving CCRCs some ability to smooth increases over time. Rental communities, by contrast, usually lack built-in healthcare or operational reserve funds and therefore rely more heavily on periodic rent increases. Other contributors include shorter lease terms that allow more frequent repricing and governance structures—many CCRCs are nonprofit and have resident councils and required fee-increase meetings, which can create pressure to moderate increases.
Caps on monthly service fees
A small number of communities have adopted caps on maximum allowable annual fee increases, but this remains uncommon. Most providers prefer flexibility so they can respond if inflation remains elevated. Still, administrators generally try to keep increases reasonable because steep hikes are unpopular with current and prospective residents and can damage a community’s reputation.
Planning for monthly service fee inflationary increases
If you are evaluating a move to a life plan community or any type of senior living, building anticipated fee increases into your financial planning is essential. When service fee growth outpaces Social Security COLA or other fixed income streams, the impact depends on your overall balance of cash, savings, investments, and other income sources.
Consider a hypothetical example to illustrate the mechanics. Suppose Social Security provides $3,300 per month (about $39,600 per year). A 3.5% COLA would add roughly $115 per month, or about $1,400 annually. If your monthly service fee is $7,000 (about $84,000 per year) and fees rise by 4%, your annual expense increases by $3,400. If Social Security is your only fixed income source outside portfolio returns, that creates an annual shortfall of about $2,100 in this example. Over time, these shortfalls accumulate and can strain cash flow if not otherwise addressed.
Now suppose you also hold a diversified portfolio, savings, and retirement accounts totaling $1 million and realizing a blended annual return near 4%. That portfolio would generate approximately $40,000 for the year. After covering the $2,100 shortfall, your overall assets still grow by about $37,900 that year. In other words, even when fee increases exceed COLA, sufficient liquid assets and investment income can absorb the difference without immediate hardship.
This example highlights two practical points: first, fee increases that outpace Social Security COLA are not ideal, but they are manageable for many people who have diversified income and asset sources; second, additional fixed-income streams such as pensions or rental income reduce the strain. Conversely, in a year of negative market returns the same cushion may not exist, so reliance on investment returns involves risk. That said, many older adults hold more conservative portfolios, and current yields on secure instruments such as short-term certificates of deposit and government bonds are often in the 4–5% area, which can help offset rising fees.
The effect of taxes and tax deductions
Taxes also matter when evaluating whether fee increases will outpace income. COLA increases to Social Security can be subject to income tax; depending on your total income, up to 85% of Social Security benefits may be taxable. Using the earlier COLA example, a $1,400 increase might net closer to $1,200 after taxes at a moderate effective tax rate.
On the other side, many life plan community residents may qualify to deduct a portion of monthly service fees as pre-paid healthcare expenses, subject to tax rules and individual circumstances. For residents who qualify, that deduction can offset some or all of the additional income tax burden and, in some cases, improve overall after-tax cash flow.
Putting senior living fee increases into perspective
Sound financial planning for senior living goes beyond covering short-term monthly expenses. It requires evaluating your projected net worth over your expected lifespan, considering legacy goals, and aligning retirement income strategy with those priorities. Thoughtful planning helps ensure you can pay for ongoing care while also pursuing goals such as preserving an inheritance, supporting charitable causes, or maintaining financial independence.
This article is not personal financial advice. Individual circumstances vary. Consult your financial and tax professionals before making decisions.