Dispelling myths about paying for a Retirement Community

By Penny Smith, RWC Vice President of Finance and Chief Financial Officer

Q. What do you consider to be the top myth about paying for a Continuing Care Retirement Community (CCRC)?

Most people think it’s out of their reach. That’s the most common myth. If potential residents sit down with a retirement community CFO or financial planner and do a comparative analysis of what they would spend living at home versus a CCRC, they might be surprised. By the time they factor in the tax benefit, they may find that it’s equivalent or even less than what they would spend living in the greater community.

Q. Are you asked to hand over all your assets when you enter a CCRC?

No! Like most CCRCs, we ask for a confidential financial statement. This information allows for an evaluation of resources and favorable matching with the most affordable residence type. We expect that resident resources will be used by the individual(s) for their personal expenses. Lifecare communities ensure that, lifecare contract residents whose financial resources have been exhausted despite prudent planning, can remain at the CCRC.

Q. What is the tax benefit?

A portion of your one-time entrance fee may be included on your tax return as a prepaid medical expense. Also, a portion of your monthly fee may also be deducted. RWC and many CCRCs engage outside experts to review the specific amount of the monthly fees and entrance fees that are deductible as medical expenses on federal tax returns every year. For RWC, the medical deduction has consistently been 39 percent over the last several years.

The medical deduction is a benefit to be maximized each year. It provides the opportunity for matching income such as a lump sum retirement fund distribution or sale of appreciated assets, with the deduction. The key is to make the most of the tax advantage for the initial year and future years.

Q. Do I still need health insurance at a CCRC?

Yes! You want to evaluate the coverage in your health care insurance policy regularly and well ahead of time. It’s important to understand whether the coverage is in lieu of or supplemental to traditional Medicare. Insurance is necessary for hospital visits, skilled services, doctor visits, prescriptions, etc.

Q. What are some creative ways of paying for the move to a CCRC?

The most common avenues of funding the entrance fee is the sale of a home, sale of securities, and retirement fund distribution. Some individuals obtain a bridge loan from a bank, which allows time to sell their house.

Q. What is the benefit to me from a health care perspective to live at a CCRC?

CCRCs provide residents with priority access to care services across a full continuum of care, including skilled nursing care within the onsite health care center.

Q. What final advice would you provide?

Making the move to a CCRC is great planning for the future. Often, I’ve heard residents share regret for not making the move sooner. Savvy seniors should explore their options, identify their plan, and utilize available resources such as tax planning to maximize their benefits.

The recommendations and advice provided here is not applicable to all situations. Individual circumstances vary and it’s smart to get advice from a professional financial planner or tax advisor to determine what works for your situation and needs.