Are You Putting All Your Eggs in One Long Term Care Basket?
Last year on this blog I wrote about the financial risks of investing in a continuing care retirement community (CCRC) . Late last year Erickson Retirement Communities, which operates CCRCs in 10 states, including New Jersey, filed for Chapter 11 bankruptcy, reinforcing many of the concerns I have often expressed to clients.
CCRCs are communities that provide a full continuum of care for their residents. They have flexible accommodations designed to meet their resident’s health and housing needs as those needs change over time, offering independent living, assisted living and nursing home care, usually all in one location. As a requirement for admission, most CCRCs require residents to pay an entrance fee, or lump sum “buy-in”. In Erickson’s case this can range from $150,000 to $400,000. And there lies one of the concerns.
So often I see people consider committing almost their entire savings to the entrance fee. “The CCRC is going to provide my care no matter what level I need”, they tell me. “And the entrance fee is refundable,” (which is true in Erickson’s case). My reply, however, is that even if it is refundable, there is no guarantee you’ll get it back if the company collapses financially.
Erickson is a good illustration of that. While it appears that there will be some kind of restructuring that will allow it to continue to operate, that is far from certain at this point and if creditors of the company push to get paid back your money is at risk of being used to pay off this debt. There are no certainties in life (other than death and taxes, as the saying goes). So, you’ve got to have a contingent plan, in the event that the CCRC can’t deliver on its’ promise. Remember, you could be living in their community for 10 to 15 years or longer. A lot can change in that amount of time.
It’s important, therefore, not to put all your eggs in one basket. If you do invest in the CCRC model, and it certainly can be a good option for some, make sure you do your “due diligence”, as we attorneys are fond of saying, (ie. do a background check on the company) and make sure you’ve got a backup plan. This means the company shouldn’t be holding all (or substantially all) of your money. You’ve got to have sufficient money remaining after you’ve paid the entrance fee, to finance a backup plan. Because without any money, you’ve really got no plan.
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Ben Balsbaugh
This is a timely article useful amongst families with loved one’s needing assistance and independence at the same time. An independent living, assisted living and nursing home care in one location is a good option. Thank you for sharing this information.
Mark
I appreciate your comments concerning CCRCs, especially your last comment about doing your due diligence when it comes to researching the “best” community. Although Erickson is going through a difficult time and their residents are rightly concerned, not all organizations are in such bad financial shape. In fact, many are very healthy financially.
I tell all of my clients to thoroughly research each community they’re interested in. Demand a copy of the community’s financial disclosure statement — it should tell you a lot about the organization and how it is managed. Also, it wouldn’t hurt if the community is nationally accredited by CARF-CCAC, and has either a 4 or 5 star-rated nursing center as well. Again, this will help you determine how well the organization/community is being managed.
As you said, there are no certainties or guarantees in life. You are at some sort of risk no matter where you live. But for many older adults, living in a well-managed, financially stable, customer service-oriented community can be an enjoyable and rewarding place to live for many years.