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Looking Under The Hood At CCRC Financial Stability

Looking Under the Hood at CCRC Financial Stability

Choosing to move from a single-family home or apartment to a Continuing Care Retirement Community (CCRC) can be overwhelming from an emotional standpoint. Once a retiree has made that qualitative decision, perhaps with the support of family members, the remaining questions tend to be financial ones, like “Can I actually afford this community?” or “What impact will these new costs have on my estate?”

Once you or a family member has a plan in place to accommodate the potentially large upfront entry fee for the CCRC, as well as the projected ongoing monthly fees, you may have another important financial question: “Will this community remain financially solvent enough to provide me with care for all of my years?”

Following the financial crisis and the housing bubble implosion, CCRCs were under significant financial pressure–so much so that a handful filed for Chapter 11 bankruptcy protection. Why the difficulty? Seniors who may have typically have sold their primary home to fund their CCRC entry fees might not have been able to do so during this period, due to lower-than-expected profits from the sale. Also, because entry fees tend to fund both operations and debt service of the communities, lower profits pushed down the occupancies and the ability of some communities to keep up their service levels and refund entry fees when required.

Fast forward from the financial crisis to today. What are some of the ways today’s retirees can determine the financial strength and sustainability of the communities they’re considering?

  1. Ask to see financials. While financial statements may seem intimidating to review, there are some benchmarking ratios that your financial advisor can use to compare communities on a financial “apples-to-apples” basis. The industry organization CARF.org (Commission on Accreditation of Rehabilitation Facilities) also publishes the “Consumer Guide to Understanding Financial Performance and Reporting in CCRCs,” a resource that can serve as your comparison guide.
  2. Talk to the CFO. With financial data in hand, you should have access to the community’s chief financial officer (CFO). Talk to him/her if the marketing representative doesn’t have adequate information on criteria such as bond-debt ratings, operating revenues and net worth.
  3. Learn about the endowment. Communities with non-profit sponsors may have endowment funds that provide benevolent care to residents who deplete their personal assets. Ask questions about how this endowment is used—both for charitable help and to help fund ongoing operations.
  4. Ask about occupancy rates. Every community’s occupancy rate may fluctuate in the short term,. However, a strong community that attracts new residents will typically run more than 90% occupied. Ask about the average occupancy rate over the past five years and also the current occupancy rate to determine if the community is attracting new residents.
  5. Research expansion plans. Communities that are adding living units, including independent condos and nursing/assisted living wings, typically are in growth mode. If your potential community is growing, ask for details on how those expansions are being financed. Does the community have readily accessible capital or are they taking on significant debt? Your financial advisor can help you determine whether the community is expanding in a responsible, sustainable way.

Investing Your Nest Egg

Investing in a CCRC may be the biggest financial decision a senior will make during retirement. In some instances, it may be the equivalent of handing over your entire home proceeds to cover an entry fee, as well as giving up an entire pension and all Social Security benefits to cover the ongoing monthly fees.

While access to lifetime healthcare and a safe social environment may justify those costs, it’s important to make sure you’re handing over your hard-earned assets to a community that is financially strong enough to keep its promises. For help evaluating your decision, be sure to work with an advisor who is familiar with the financials associated with CCRCs.

Important Disclosure Information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable. Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request. This article is not a substitute for personalized advice from RegentAtlantic. This information is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

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