We receive many questions from myLifeSite users about the financial stability of continuing care retirement communities (CCRCs), also called life plan communities, and how residents can be confident these communities will honor their contractual commitments.
Recently, a user shared the upsetting story of a CCRC that went bankrupt, causing many long-term residents to lose a significant portion of their deposits. Although CCRC bankruptcy is rare, such stories understandably raise concerns for people considering a move to a CCRC and for those already living in one.
Choosing a CCRC is a major life decision that involves both lifestyle and financial considerations. Residents often pay a substantial entrance fee and ongoing monthly charges in exchange for services, amenities, and the assurance of access to a full continuum of care if their needs change.
So how can prospective residents protect their investment and avoid situations like the one described above? How can you evaluate whether a CCRC is likely to remain financially viable and meet its obligations to residents?
>> Related: Choosing a CCRC That Will Keep Its Promises (and What to Do If It Doesn’t!)
Understanding a CCRC’s overall financial viability
It helps to remember that CCRCs are businesses—some operate as for-profit entities while others are not-for-profit. As with any industry, management quality and financial practices vary. That’s why careful research is essential before you commit to a community.
Prospective residents should ask about a community’s financial condition and seek to understand its long-term fiscal health—what is commonly called financial viability.
Analyzing CCRC finances can be complex, even for experts, because these communities use distinctive business models and residency contracts that affect long-term actuarial outcomes. The important step is to request the right documentation and ask targeted questions. Key items to review include:
- The CCRC’s business structure: The legal and tax structure of a community affects how it operates and its financial obligations, which in turn influence its stability.
- State regulations and filings: In states that regulate CCRCs, public filings can provide useful information about a community’s performance and compliance.
- Financial statements: Reviewing recent audited financial statements can reveal a community’s cash flow, reserves, and overall fiscal position.
- Other financial metrics: Ratios and indicators such as debt service coverage, net operating margins, and net assets provide additional insight into a community’s financial health.
>> Related: A Secure Future: An Actuarial Perspective on CCRC Financial Viability
Factoring in bond ratings (if available)
If a community issues bonds, its bond rating can offer an objective assessment of creditworthiness. Ask whether the CCRC has a bond rating—often from rating agencies such as Fitch Ratings or Standard & Poor’s (S&P)—and request details about any recent upgrades or downgrades.
Bond ratings generally fall into two categories:
- Investment grade: These ratings indicate stronger financial stability and are typically the only bonds large institutional investors will buy. Communities with steady cash flow and manageable debt loads are more likely to earn an investment grade rating.
- Speculative (high-yield): These bonds carry greater risk and may offer higher yields to compensate investors for that additional risk.
S&P and Fitch use similar scales: investment grade typically ranges from AAA (strongest) down to BBB, while speculative ratings range from BB down to D. Some ratings include plus or minus modifiers that reflect relative differences in default risk or recovery prospects.
Knowing a CCRC’s bond rating, when available, provides another quantitative data point that can help you make an informed decision about where to invest your housing dollars.
>> Related: CCRC Bond Ratings Explained
Making a sound CCRC investment
Many people view a CCRC move as a form of insurance against future care needs. The defining feature of CCRCs is their continuum of care services, which ensures residents can access varying levels of care as their requirements change. When you invest in a CCRC, you should feel confident the community will uphold those contractual commitments.
The financial and emotional stakes are significant for many seniors. While no analysis can guarantee a community’s future financial performance, understanding the main factors that drive fiscal health—and performing due diligence by reviewing available financial documents, ratings, and regulatory filings—will greatly reduce your risk. By asking the right questions and gathering key information, you can choose a CCRC with greater confidence that it will honor its promises.
>> FREE RESOURCE: Evaluate the Financial Viability of a CCRC With Our Free Guide