Every so often I’m asked for financial guidance about moving to a continuing care retirement community (CCRC), also called a life plan community. While I no longer provide one-on-one financial planning as I did in my previous career, I’ve put together key financial considerations to help you evaluate a potential move to a CCRC.
This article is not a substitute for individualized advice. Review your unique situation with an experienced financial advisor who understands senior living options and the specific nuances of CCRCs. If your advisor needs CCRC-specific background, they can research reputable sources and community disclosures.
Will Your Month-to-Month Expenses Change?
Your income needs drive a retirement financial plan, so start by estimating your monthly budget now and what it would be after a move to a CCRC. If you don’t already track your average monthly discretionary and non-discretionary spending, take time to do so. Include occasional home maintenance and repair costs—roof replacement, HVAC repair, siding, etc.—and spread those one-time costs into a monthly average for planning purposes.
Once you’ve identified a CCRC and the monthly cost of the residence you’re considering, compare your current monthly expenses to the community’s monthly fee. Make sure you understand what the fee covers and what is charged separately. Many costs you currently pay at home (utilities, maintenance, some services) may be included in the community fee, so the net difference might be smaller than you expect.
Adjusting Your Income Strategy
If your monthly expenses rise after the move, determine whether you can afford the increase and, if so, the most tax-efficient way to generate cash flow. One common approach is a “bucket” strategy: a short-term liquid bucket with one to two years of cash, a mid-term bucket for five to ten years, and a long-term bucket for ten-plus years. Each bucket can contain different account types—taxable accounts, IRAs, or other tax-deferred vehicles.
The short-term bucket is replenished annually or every few years from the other buckets depending on market conditions, tax consequences, and account performance. While some people combine the mid- and long-term buckets, others value the clarity of keeping them separate.
Because the national average move-in age for CCRCs is around 80 and these residents are generally healthier, planning for 10+ years remains reasonable. Planning for a longer horizon helps reduce the risk of outliving your assets.
Plan for Inflation
Monthly fees at CCRCs and other senior living communities often rise over time. It’s prudent to plan for annual increases—3% is a reasonable planning assumption though actual changes may vary—so factor inflation into your income and withdrawal plans.
Withdrawal Rates and Sustainability
Estimate whether you can withdraw enough from the mid- and long-term buckets to replenish short-term cash without jeopardizing long-term security. A simple way to approximate this is to calculate your average annual withdrawal rate from buckets two and three.
For example, if you need $50,000 per year from invested assets after Social Security and pension income, a commonly cited safe withdrawal rate is 3–4%. Dividing $50,000 by 0.04 implies roughly $1.25 million would be needed in those buckets to be in the ballpark. This is a simplified illustration—other factors like inflation, annuity income, and bond ladders should be incorporated into a detailed plan with your advisor.
Understanding Tax Deductions
Explore whether any portion of an entry fee or monthly fee is tax-deductible, as deductions can sometimes be significant and affect net costs. Consult a tax professional or financial advisor to determine eligibility and to apply deductions correctly in your planning.
Using Proceeds from the Sale of Your Home
If you own a home and plan to sell it before moving, estimate net proceeds after fees and taxes. Excess proceeds beyond the CCRC entry fee can fund your short-term bucket and delay withdrawals from other accounts. If proceeds fall short of the entry fee, evaluate funding options and tax-efficient withdrawal strategies.
When timing a home sale and community move, some residents use short-term bridge financing if the community requires an entry fee before home sale proceeds arrive. Discuss options with your advisor and lenders to ensure smooth timing.
Plan for Long-Term Care Costs
Long-term care can be expensive—costs can reach $10,000 per month or more for advanced care—so plan carefully. Medicare generally does not cover long-term custodial care; it covers limited medically necessary nursing care under strict conditions. Common ways to pay for long-term care include self-insuring with savings and investments, tapping home equity (sale, reverse mortgage, or HELOC), long-term care insurance, VA benefits where applicable, or a lifecare contract through a CCRC.
A lifecare contract can act like an unlimited long-term care policy: residents often pay the same monthly service fee whether living independently or receiving higher levels of care, although inflationary increases or ancillary charges can still apply. A lifecare contract can be financially advantageous if you anticipate needing extended care, but contract details vary and should be reviewed closely.
Other contract options at CCRCs may make sense depending on your situation and whether you own existing long-term care insurance.
Refundable Entry Fees: Pros and Cons
Many CCRCs offer refundable entry fees, sometimes up to 90% or 100% refundable at move-out or death. Refundable fees are typically higher than nonrefundable options and may reduce monthly fees, but whether they’re worthwhile depends on your estate goals and the financial strength of the community. Work with your advisor to model scenarios and review contract stipulations to understand refund timing, conditions, and the community’s ability to meet obligations.
Key Steps to Take
Moving to a CCRC provides peace of mind through a continuum of care, but it requires careful financial planning. To prepare, consider these actions:
- Document your current monthly budget, including occasional home maintenance and repair costs.
- Compare current monthly expenses to the CCRC’s monthly fee, and confirm what is and is not included.
- Discuss tax-efficient income strategies with your financial advisor, including a short-, mid-, and long-term bucket approach.
- Investigate potential tax deductions related to entry fees and monthly fees.
- Estimate proceeds from selling your home and how those funds will be allocated.
- Plan for long-term care funding—evaluate lifecare contracts, long-term care insurance, home equity options, and other resources.
- Model whether a refundable entry fee makes sense for your estate and financial goals, and verify the community’s refund policy and financial health.
Thoughtful planning and professional advice tailored to your circumstances will help you make an informed decision about whether a CCRC is the right choice for you and how to structure your finances to support it.