Contracts, Fees and Refunds — Oh My! — Continuing Care Retirement Communities

Mr. and Mrs. Client are very excited; they have found a cottage in a retirement community and everything seems perfect! The only things standing between them and their dream retirement home are contracts, fees and refunds. Oh my! They’ve been handed three types of contracts, multiple monthly fee choices, and “entrance” fee and refund options. They’re overwhelmed and have come to BWFA for help.

The Clients have chosen a cottage in a continuing care retirement community (CCRC). A CCRC provides a continuum of housing options—from independent living to assisted living to skilled nursing—all in one community. The Clients are assured of housing and healthcare services for the rest of their lives.

In most cases, residents of these communities are required to pay a substantial entrance fee as well as a monthly fee. The amount of each of those fees is based on the type of housing and the level of care and amenities chosen. For example, a resident who chooses a three-bedroom cottage will pay both a higher entrance fee and a higher monthly fee than a resident who chooses a one-bedroom apartment. A resident needing assisted living services may have a higher monthly fee than a resident requiring no assistance.

Generally, there are three types of contracts:

Extensive Contract — This contract offers unlimited long-term nursing care with little or no increase in monthly fees.

Modified Contract — This contract includes a specified amount of health care or long-term nursing care.

Fee-for-service — This contract requires that residents pay separately for all health and medical services and long-term care.

Entrance Fee

Entrance fees are substantial. Some communities offer entrance fee options that include refunds when you leave. Choosing among these options is a daunting task. Read the contract carefully to determine if the entrance fees are refundable, refundable on a declining basis over time, or partially refundable on a percentage basis.

The Clients have asked us to evaluate entrance fees options at a local community. The entrance fee options are:

  1. 90% Refund — Purchase a cottage for $602,665 and your estate receives a 90% refund of the purchase price.
  2. 50% Refund — Purchase a cottage for $433,267 and your estate receives a 50% refund.
  3. 0% Refund — Purchase a cottage for $325,765 and your estate receives no refund.

Using a net present value analysis, we conclude that if our clients stay at the community for more than eleven years the 0% refund option is best. Key factors we considered in the analysis are:

  • A life expectancy of 13 years for him and 19 years for her
  • Their health, which is good
  • A 6% investment return
  • A 3% inflation rate


CCRCs are growing in popularity, because they offer lifetime housing and a range of services. However, choosing among the range of services, the fee options, and the contract types is daunting. Do your homework, visit several communities, prepare a list of questions in advance, and read the fine print. As with all financial planning issues, we will be happy to assist you in evaluating your choices.