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RISKS AND REWARDS OF MOVING TO A CCRC

Prospective residents of continuing-care retirement communities need to do their
homework before signing a contract.

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By Eleanor Laise
last updated January 28, 2013

EDITOR'S NOTE: This article was originally published in the November 2012 issue
of Kiplinger's Retirement Report. To subscribe, click here.



Imagine hunting for a new home, making high-stakes health care decisions and
negotiating a complex business deal—all at the same time. That's the challenge
facing seniors considering a move to a continuing-care retirement community.



These communities, known as CCRCs, typically offer independent-living units as
well as assisted-living and skilled-nursing facilities, allowing them to serve
everyone from active newcomers to older residents requiring round-the-clock
care. Seniors move in expecting to enjoy amenities such as libraries, golf
courses and posh dining rooms while they're healthy and to receive excellent
skilled-nursing care if they fall ill.


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When all the pieces fall into place, that's exactly what happens. But finding a
CCRC that fits your vision of a financially secure retirement may require some
hard-nosed negotiation with the facility's management and detailed analysis of
the development's finances. You'll need to assess your ability to pay monthly
fees that may rise faster than inflation. And with the typical CCRC charging
six-figure entrance fees, you'll need to understand the size of any refund that
you or your heirs may receive if you decide to move or when you die.

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The search for the ideal retirement community is only getting tougher as CCRCs
offer a growing array of complex contract types and struggle with financial
challenges. Amid the housing downturn, many CCRCs saw occupancy rates drop
because prospective residents had trouble selling their homes. Erickson
Retirement Communities, a major developer, managed 20 CCRCs in various stages of
development at the time it filed for bankruptcy in late 2009. CCRC bankruptcies
have continued this year.Another reason prospective CCRC residents need to do
their homework: Oversight is spotty. Some states don't have specific CCRC
regulations, and those that do tend to focus more on the community's financial
condition and less on consumer protection. Compared with heavily regulated
nursing homes, CCRCs are "a little like the Wild West," says Rebecca Benson, an
elder law attorney at Margolis & Bloom, in Boston.




DECODING THE CONTRACT AND THE CCRC'S FINANCES

Traditionally, CCRCs offered "life care" or type A contracts, which typically
involve high entrance fees but limit future cost increases for long-term-care
services. By prepaying for long-term care, residents are limiting their risks if
care costs skyrocket.While these contracts are still common, many CCRCs also
offer other options. These include "modified" or type B contracts, which
typically have lower entrance fees but include only a limited amount of assisted
living and nursing care in the initial fee. This contract potentially requires
residents to shoulder higher fees as their care needs increase. Fee-for-service
or type C contracts may have lower entrance fees than type A or B contracts but
require residents to pay for care at the market rate when they need services.

The choice of contract can depend on the senior's ability to absorb future cost
increases, health status and risk tolerance. With a type A contract, "if you
prepay all that medical care and die within the first few years in the
community, you would have been better off with fee-for-service," says James
Ciprich, wealth manager at RegentAtlantic Capital, in Morristown, N.J.No matter
what type of contract you're considering, ask for a breakdown of all fees and a
history of past fee increases—and understand what you're getting for those fees.
An entrance fee is a one-time, upfront charge that usually doesn't buy you
ownership interest in a CCRC apartment. Instead, it allows you to occupy the
unit and typically guarantees you access to long-term care at the facility.
Monthly fees, meanwhile, may cover meals, housekeeping, maintenance and
activities, along with some or all health care services.

Sharp increases in monthly fees are a common concern among CCRC residents. Ruth
Holland Walsh, president of the National Continuing Care Residents Association,
says she has seen her own monthly fees climb nearly 60% since she first moved to
a Mystic, Conn., CCRC in 2005. A retired educator, Walsh lives on a pension and
a small Social Security benefit, and "those monthly service fees have gone up to
the point where I think, holy smoke, will I be able to continue to do this?" she
says.

Plan on monthly fees increasing at least 4% to 6% annually while you're in the
independent-living unit—and potentially steeper increases for assisted-living or
skilled-nursing stays. Many CCRCs also say they have a "benevolent fund" to
assist residents who run out of money. The question is: "For how long and in
what circumstances?" says Doris Hawks, an elder law attorney in Los Altos, Cal.
The details should be spelled out in the contract. Check recent annual reports
for details on the benevolent fund. Given the growing needs of an aging
community, these funds can run dry.

Also review CCRC agreements for provisions governing discharge from the
facility. Facilities may attempt to discharge residents if they run out of money
or develop above-average care needs, says Eric Carlson, directing attorney at
the National Senior Citizens Law Center. Check for specific circumstances that
might justify the facility forcing out a resident, Carlson says. "Look out for
fuzzy language," he says, such as involuntary discharges being allowed for "good
cause."With CCRCs eager to fill empty units, there is often room to negotiate
fees and other contract provisions. For example, you might negotiate to pay half
of the entrance fee now and half in a year. Another bargaining chip is a refund
of entrance fees, which may be paid to you if you move out or to your estate if
you die. Contracts can include such provisions as promising to refund a set
percentage of the entrance fee or saying the refundable portion will decline
over a certain number of years.

The refund is often contingent on your unit being occupied by a new
resident—which may mean long refund delays when the housing market is in the
doldrums. If you're confident in your choice of CCRC and refundability is not
that important to you, you might negotiate to waive your right to a refund after
a short period in exchange for a lower entrance fee.Besides reviewing the
contract provisions, prospective residents should examine the facility's
financial strength. Even the ritziest CCRCs can have financial problems. The Web
site for Devonshire at PGA National, a CCRC in Palm Beach Gardens, Fla., touts
its "superb health and racquet club" and "spectacular 40,000 square-foot
international spa." Partially refundable entrance fees can stretch into the
seven figures, and monthly fees can top $5,100, according to the site.

But Devonshire in recent months was hit with a $158 million foreclosure suit. A
September letter to residents from Craig Anderson, chief executive officer of
Devonshire owner SHP Senior Living Services in Tampa, noted that ownership of
the facility may change hands but claimed that residents' services "have not
changed and will not change."

"It's really going to be business as usual until that foreclosure process runs
its full course," which could take a couple of years, Anderson said in an
interview. New residents' entrance fees are now being held in escrow by the
state of Florida, he said. That's particularly important given that Devonshire's
plan options promise entrance-fee refunds of up to 90%.

If a CCRC is forced into bankruptcy, residents may be considered unsecured
creditors and could lose any refundable entrance fees. Or the facility may be
bought out of bankruptcy by a new owner, resulting in service changes and other
upheaval for residents.

Ask the CCRC for its audited financial statements, and seek help in evaluating
them from a financial adviser. Some red flags: expenses that are greater than
operating income, or liabilities that exceed assets. CARF International, which
provides accreditation to CCRCs, has a consumer guide to understanding CCRC
finances at www.carf.org.

The facility's occupancy rate is another key measure of its viability. Occupancy
below 85% "can be a cause for concern, unless it's in a newer community that's
filling up," says Stephen Maag, director of residential communities at
LeadingAge, an association of nonprofit senior care providers. Some Erickson
CCRCs, for example, had occupancy rates between 60% and 70% at the time of the
company's bankruptcy filing, according to court documents. Baltimore, Md.–based
Erickson, which is now called Erickson Living, emerged from bankruptcy with a
new owner in 2010.

Prospective residents should examine the CCRC's ownership structure, since
problems at a parent company can mean problems for residents. In a 2010 review
of CCRCs, the U.S. Senate Aging Committee found that parent organizations are
"represented by a complex organizational maze" of for-profit and nonprofit
entities.

Some residents of both for-profit and nonprofit CCRCs are concerned about how
the organization uses residents' fees, says Katherine Pearson, a law professor
at Penn State's Dickinson School of Law who studies CCRCs. A parent organization
may control how money is used across its operations, leaving CCRC residents
wondering if their fees are really going toward services at their own facility.
If the CCRC has a large parent company, speak with management and residents, and
check out its annual report for details on its activities and future
plans.Concerns about how funds are used across a broad organization are at the
center of an ongoing dispute between residents of Rogue Valley Manor in Medford,
Ore., and Pacific Retirement Services (PRS), the company that controls the CCRC.
Rogue Valley's board in August filed a lawsuit seeking independence from PRS,
claiming that PRS was charging excessive management fees and favoring other
affiliates and properties over Rogue Valley, among other issues. After PRS
removed seven of the nine Rogue Valley board members, that legal challenge
fizzled. Now, residents have organized a steering committee and raised roughly
$250,000 to work with their own lawyer, says Don Lewis, 84, vice-president of
the Rogue Valley residents' council. Residents want more control over Rogue
Valley's future, he says. What's more, "I would like to see an accounting" of
how fees are used, says Lewis, who has lived at the CCRC since 2005.

The management fee that Rogue Valley pays PRS is "well within industry
standards," says Mike Morris, PRS chief operating officer and Rogue Valley's
interim executive director. Rogue Valley "has seen all sorts of success as a
result of its relationship with PRS," he says.


HEALTH CARE AND LIFESTYLE CONSIDERATIONS

The fact that CCRCs offer multiple levels of care within a single community is a
key selling point. But transitions between those levels of care can be a major
source of tension between residents and providers.Residents may feel pressured
to move from one level of care to another, such as when a facility says it
cannot deliver the required care in an independent-living unit, lawyers say.
That may mean leaving a longtime home in the independent-living unit and being
separated from a spouse—resulting in higher fees for a couple occupying two
units. Some CCRCs have an appeals process for residents who are transferred
involuntarily.

Before signing a contract, ask about the process for transferring to the next
level of care. Prospective residents can push to have their own physician
involved in the decision, says Henry Carpenter, an elder law attorney in
Yardley, Pa. Also ask about the rules on hiring your own care providers, in
addition to those offered by the CCRC. Many CCRCs mandate that residents who
need more than a set number of hours of care per day transfer to assisted
living, says Susan Ann Silverstein, senior attorney at AARP Foundation
Litigation.Another key question: Will an assisted-living or skilled-nursing bed
be available when you need it? CCRCs are often built in phases, starting with
independent-living units for the healthy new residents. In some cases, residents
need skilled-nursing facilities that aren't even built yet. In other cases,
CCRCs will admit people from outside the community to the nursing facility. Ask
about the process for moving to a nearby facility if the nursing facility fills
up and how any extra cost would be covered.

To get a sense of what life is really like at a CCRC, make several unannounced
visits and have a few random meals there. You may find a lively, collegial
community—or something that more resembles your worst memories of grade-school
bullying.Benson, the Boston lawyer, recently worked with a CCRC resident
suffering from Parkinson's disease. The facility tried to stop him from having
lunch with his wife, saying that because of his physical impairments, "it made
people uncomfortable to have him in the nice dining room," Benson says. After
Benson cited laws such as the Americans with Disabilities Act, which prohibits
discrimination based on disability, the facility backed down. But such
discrimination, whether prompted by fellow residents' complaints or a facility's
desire to project a vibrant image, is an ongoing issue for CCRC residents,
lawyers say.

Talk to current residents about their activities and their relationships with
each other as well as with management and staff. While many CCRC residents say
they've noticed an uptick in the age of incoming residents, that may or may not
say anything about the community's activities. Richard Waite of Brandywine, Pa.,
an 88-year-old former insurance company executive, has lived in a CCRC for about
12 years and says, "I'm busier here right now than I was when I was working for
the corporation."

In addition to his regular bridge and poker games, Waite serves on the resident
advisory council and finance committee. His negotiations with management on
behalf of residents have dealt with everything from a refurbishing charge for
fixing up vacant units to the amount of credits residents receive for unused
meals on their meal plan, he says. "I've been a very strong advocate of
residents' rights," he says. "The corporation has asked me at times to cool it a
bit."

Haven’t yet filed for Social Security? Create a personalized strategy to
maximize your lifetime income from Social Security. Order Kiplinger’s Social
Security Solutions today.

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Features Making Your Money Last


Eleanor Laise
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Senior Editor, Kiplinger's Retirement Report
Laise covers retirement issues ranging from income investing and pension plans
to long-term care and estate planning. She joined Kiplinger in 2011 from the
Wall Street Journal, where as a staff reporter she covered mutual funds,
retirement plans and other personal finance topics. Laise was previously a
senior writer at SmartMoney magazine. She started her journalism career at
Bloomberg Personal Finance magazine and holds a BA in English from Columbia
University.

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