All about continuing care communities

Q: Recently you wrote you were beginning to look at continuing care retirement communities. My wife and I retired three years ago and have been looking at them, although we don’t plan on entering one for at least a decade when we are in our late 70s.

In terms of facilities and services, many are quite attractive. What puzzles us are the costs, such as entrance fees, “equity’’ interests and monthly charges. We hope you can provide some clues for evaluation.

A: We’ve looked at continuing care retirement communities and other types of retirement communities more as research for this column than for personal interest so far. Being in our early 60s, we are not even eligible for some communities that require residents to be at least 65. We also think they are more suited for people in their 70s.

But same as you, we think it’s wise to start looking early and learning as much as you can about what they offer.

A continuing care retirement community, as the name implies, offers different levels of care for residents, from independent living to assisted living to nursing facility care, often in the same complex, although in some, nursing facilities are off-site. Most residents can function independently when they move in, but want the peace of mind of knowing they won’t have to go far if their needs change.

Costs and fee structures among continuing care retirement communities can vary widely, and are not just based on amenities and services. Some communities charge hefty entrance fees of $50,000 or more that are only partly refundable, and then only for a limited time. These fees help pay for a guarantee that, as you need higher levels of care, you will be able to stay at the facility. In a way, you can consider the entrance fee as a lump-sum premium of sorts for long-term care.

In addition to the entrance fee, you pay monthly rent and/or a maintenance fee for an array of services, including building maintenance, cleaning, most utilities, social activities and some meals.

Some of the newer continuing care retirement communities we’ve looked at have dropped the entrance fee and incorporate all costs into the monthly rent. That rent will vary according to the level of care you need and will be lower for independent living.

Under another arrangement, you may be charged an occupancy fee to obtain an “equity interest” in an apartment or villa, which can reduce your monthly rent. In some communities, the only way to get into the villas is by paying the occupancy fee.

It may sound good, but we find the term “equity interest” misleading.

The same goes for “occupancy fee,” which is no different from what you would pay for a home of similar size and quality elsewhere. At a community we visited, the occupancy fee on a 2,052-square foot, two-bedroom, two-bath villa home with den was $448,300.

You do get this money back - or, in some cases, only 90 percent of it - if you move out, or your heirs get it when you die, but without any interest. In other words, your “equity interest” does not appreciate and you can’t sell your home for a profit.

So, if you have a choice between shelling out the money for an equity interest or paying a higher monthly rent, your decision will depend on the amounts involved, how much time you think you will stay at the facility and how much interest you could be earning on your money if you did not have to pay the occupancy fee.

Find out too how much the monthly rent can go up each year. With a 5 percent annual increase allowed in a community we saw, a $3,000 monthly rent could balloon to $6,236 after 15 years.

Humberto and Georgina Cruz are a husband-and-wife writing team who work together in this column. Send questions and comments to AskHumberto@aol.com or GVCruz@aol.com.