What Your Financial Advisor May Overlook When Calculating CCRC Costs

This article is provided by our valued partner, myLifeSite. 

Choosing the right life plan retirement community (i.e., continuing care retirement community or “CCRC”) is an important decision, impacting your quality of life and your finances. If you utilize the services of a financial advisor (FA), it’s likely you will seek their guidance in analyzing the potential impact of this move on your estate.  

The problem, however, is that while many financial advisors understand assisted living and long-term care, they may be much less versed on life plan communities, which are quite different from other senior living options, and can even have unique nuances from one to another. Additionally, most financial planning software is not designed to account for the many potential cost variables that are inherent to the life plan senior living model.     

Financial advisors often have questions about this topic because they don’t have a good resource for in-depth information. Without an adequate understanding of life plan communities, it is difficult for them to offer qualified guidance to their clients. It could even result in providing costly incorrect advice.  

Let’s take a look at a few of the main things that financial advisors should understand about life plan communities, as well as some tips on what you should bring to a meeting with your own advisor.  

Accounting for an entry fee  

Most financial planning software programs on the market today do not account for the financial nuances of a potential move to a life plan community. For example, with most programs, there is a long-term care section where the advisor will simply enter a hypothetical cost for assisted living and/or nursing care in the future. This is often done to help determine if long-term care insurance may be needed.  

But, in terms of a life plan community, there are more factors to consider. For example, many life plan communities require a sizeable entry fee, which in essence gives the resident priority access to a full continuum of care over their lifetime, including independent living, assisted living, memory care, and nursing care — usually, but not always, on one campus.  

This entry fee may be partially refundable in the future — subject to the financial condition of the organization — either if the resident leaves the community or at death. Again, the financial advisor’s software program may not be equipped to account for an entry fee paid today, which is partially refundable at death.  

Factoring in the cost of care 

Additionally, if a resident of a life plan community should require higher levels of care in the future, the cost of such care can vary widely from one life plan community to another. If you are evaluating more than one life plan community, any projections your financial advisor prepares for you should account for the potential cost of care in accordance with the type of residency contract offered by each community. Otherwise, the projections and comparisons could be largely inaccurate.  

For example, your financial advisor may account for the fact that one life plan community has a much higher entry fee than another one you are evaluating without also accounting for the fact that it offers a significant discount on the cost of care, if you should ever need it, which is doubly beneficial in the case of a couple.  

Calculating lifetime affordability 

Evaluating your options through the lens of lifetime affordability is important when comparing the cost of life plan communities. This requires the financial advisor to not only factor in the monthly cost of independent living, but also variables like entry fees, entry fee refundability, and the cost of care.   

What to bring to your financial advisor meeting 

When you sit down with your financial advisor to do a financial analysis of your potential move to a life plan community, here are the items that would be helpful to bring:  

• Sample contract: A sample residency contract or information document provided by the life plan community that clearly describes the type of residency contract(s) offered by the life plan community. This will help your advisor understand not only the cost today, but also the potential cost in the future. Note: Many life plan communities offer multiple types of residency contracts from which to choose.  

• Entry fee and refund details: Be sure to provide your advisor with information from the life plan community that clearly spells out the entry fee and refund options. Analyzing whether a refundable entry fee makes good financial sense usually comes down to a “time value of money” calculation. But, again, many financial planning programs do not have an easy way to enter this information, and the advisor may have to do more of a manual calculation, which is not ideal.  

• Disclosure statement: Details related to the above, as well as all other important details, can also be found in the life plan community’s disclosure statement. A disclosure statement is a document that is typically required to be provided to a prospective resident at some point before you make a deposit, and it covers all the important details related to the community. Disclosure statement requirements vary by state but often include sample residency contracts, pricing, entry fee descriptions, audited financial statements, and much more. It may not be within your advisor’s purview to review the entire document, but it can’t hurt for them to have it on hand for key information.  

The value of peace of mind 

Your financial advisor is a key member of your retirement planning team. While it is their fiduciary duty to provide you with sound advice, some financial advisors simply are not well-versed as others on the many variables that factor into the overall cost of a life plan community — variables like contract type, entry fees, refunds, and cost of care.  

It’s incumbent upon financial advisors to not only educate themselves on senior living options like life plan communities but also to understand that a client’s senior living decision shouldn't be based solely on finances. Sure, the client needs to be able to afford it, but there are important considerations beyond that.  

Even if a life plan community (or other type of retirement community being considered) is more expensive than, say, remaining in the current home, that doesn't mean it's not the right move for a client. Some things are worth paying for if it means a happier and healthier life. An advisor’s job is to objectively analyze their client’s finances, but generally speaking, they should avoid offering opinions without considering the potential value of peace of mind.  

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