Continuing Care Retirement Communities
Use Personal and Family Assets
Residents must pay for the costs of care and housing in a CCRC with their own money — often with Social Security income augmented by selling some large assets such as a home or tapping into stock portfolios, pensions, or savings accounts. Some possible personal sources for financial help are discussed below.
Family members, particularly children, may also be able to help cover the costs of CCRCs. But beware that if the financial support — cash or help with paying for that housing — is paid regularly, it may be considered as part of individual income limits when determining eligibility for Medi-Cal coverage.
If a person is not concerned about qualifying for Medi-Cal coverage and there are relatives or others who are willing and able to contribute to care costs, it may be wise to get those commitments in writing to avoid future misunderstandings.
Annuities
Note that some of the methods that severely or terminally ill people commonly use to leverage assets and insurance to pay for long-term care, such as getting accelerated insurance benefits, are not a fitting option for those contemplating CCRCs, which usually require residents to be in relatively good health when admitted.
However, one possibility may be an annuity, a hybrid between insurance and an investment. An annuity is a contract in which an insurance company promises to make a series of payments to an insured who pays a premium. Basically, it functions as a savings account, with the insurance company as the bank. Within that simple definition, there are a dizzying number of variations — and because of that, annuities can be risky for those who don’t fully understand their clauses and conditions. In some arrangements, survivors can be designated to receive income after the insured’s death.
Annuities come in two types:
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Deferred annuities, by far the most common type, hold the premium payments to accumulate interest for a number of years until periodic payments are made. A potential advantage for some people is that income tax on the money is not due until distributions are received. Some deferred annuities are fixed, guaranteeing a minimum interest rate. Others are variable, allowing the insured to direct the investments among various accounts such as stocks, bonds, or money markets.
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Immediate annuities are paid for with a lump sum premium -- and the insurance company begins paying periodic payments at once.
While annuities are just one of a myriad types of investment options, they come with some type of insurance attached.
Possible drawbacks. Many annuities contain surrender charges -- payments tacked on for withdrawing money within a period after purchase, usually six or eight years, but sometimes as long as ten years. As protection against confusion for older consumers, California law requires that annuity contracts sold to seniors must contain a disclosure about the surrender charge period.
For more information about possible pitfalls of annuities, along with a synopsis of California laws controlling them, see Annuity Truth — The Truth About Purchasing Annuities for Older Americans.
Also see “What Seniors Need to Know About Annuities” by the California Department of Insurance and
“Variable Annuities — What You Should Know” by the U.S. Securities and Exchange Commission.
Get Tax Credits
While CCRCs are typically considered a pricey option for care and housing, residents may get some financial help in the form of a tax break, as the IRS may recognize a percentage of both the entrance and monthly fees as a medical expense deduction. And there is a double break for many: A portion of the entrance fee may be deductible for the year a resident moves in — and in addition, the IRS may allow a portion of the monthly fee to be deducted each year, providing an ongoing medical tax deduction.
For more information on this, consult a tax advisor, or see IRS Publication 524 (2008), "Credit for the Elderly or the Disabled."