Independent retirement living communities cater to adults, typically over the age of 55, who do not require assistance with Activities of Daily Living (ADLs), but desire a living arrangement that offers supplementary support, on-site amenities, and senior living activities. ADLs, which involve tasks related to personal hygiene, dressing, mobility, and eating, are often used to determine the level of care an individual requires during their retirement years. As individuals require more assistance with ADLs, they are better served by communities that offer higher levels of care, such as assisted living and skilled nursing facilities.
In the independent retirement living option—the Continuing Care Retirement Community (CCRC)—there are two financial aspects to consider: the entrance fee and the monthly fee. This post will briefly explore the former component, entrance fees, and types of entrance fees in independent retirement living.
What is an Entrance Fee?
An entrance fee in independent retirement living, also referred to as a “buy-in,” is a one-time upfront payment that most Continuing Care Retirement Communities (CCRCs) require to cover community operating expenses. The cost of senior living entrance fees can vary widely, ranging from $100,000 to $1 million, and typically reflects the price of homes in the surrounding area.
The amount of your entrance fee will depend on the size of the residence you select and the number of individuals occupying it. In some retirement communities, the entrance fee may also prepay some of the costs associated with providing access to continuing care for life, and provide priority access to higher levels of care.
3 Types of Entrance Fees
Entrance fees for senior living communities can vary based on a number of factors, including the size of the apartment, community amenities, unit-specific features, and the nature of the care contract. Most Continuing Care Retirement Communities (CCRCs) offer one or more of the following contract types, which determine the type of entrance fee:
- Type A: In this option, you pay a higher initial entrance fee, which essentially pre-pays for any future care needs. Your monthly fees will remain the same, regardless of the level of care required.
- Type B: With this option, you pay a lower initial entrance fee, but your monthly fees will increase if your care needs increase.
- Type C: This option offers the lowest entrance fee, but if you require a higher level of care, you will pay the full market rate for it.
Are Entrance Fees Refundable?
Entrance fees in retirement communities are usually refundable up to a specific point, with the amount of the refund depending on the type of contract you choose. For example, there are two categories of entrance fees: return of capital and declining balance. In the former, you can expect to receive a partial or full refund of the entrance fee, irrespective of how long you stay in the community. In the latter case, the contract will typically amortize the entrance fee over the first few years, after which you will not receive any portion of the fee back.
It is very important to understand the type of care contract at an independent retirement living, related upfront and recurring fees, and refund terms for better clarity before choosing one. Make your golden years of retirement a bliss with careful planning and consideration.