Aging in a Retirement Community
As retirees age, housing and healthcare begin to take a more prominent role in their financial plan. The focus shifts from the accumulation of wealth, target retirement dates and perhaps the sale of a business to topics such as portfolio withdrawals, gifting to charity and family and, ultimately, the disposition of an estate. High-net-worth retirees place a premium on quality healthcare as well as homes with attractive amenities.
While a majority of retirees have a preference to age at home, retirement communities provide an attractive solution for those who value a lifestyle that includes socialization, all-inclusive services and/or access to high-quality care. Another appealing aspect is leaving the cost and maintenance of a single-family home behind.
Retirement communities are not your grandparents’ nursing home
Many retired clients are reluctant to move to a retirement community. This may be due to preconceived notions about resigning oneself to a “nursing home.” The truth is retirement communities can range from luxury age-restricted homes to independent waterfront high-rises and continuing care retirement communities (CCRCs) with premium healthcare services. Forward-thinking communities are meeting the needs of high-net-worth retirees by offering performing arts centers, high-end fitness centers and gourmet dining services.
Costs and benefits of retirement communities
Alleviating the financial and physical burden that comes with a single-family home can be a motivator to consider today’s retirement communities. Retirees may be looking forward to putting landscaping, snow removal and home maintenance in the rear-view mirror.
Additionally, moving to a retirement community can free up cash flow from expenses like property taxes, homeowners’ insurance and utilities. Retirees will shift some of these expenses into a new monthly fee or monthly rent at a community. A good strategy is to compare “before and after” costs to truly understand if there is a net savings or a need to increase cash flow from your portfolio and adjust other financial goals to compensate.
Retirement communities typically appeal to and meet the needs of those who value social engagement. Many communities offer programs around health and wellness, as well as clubs of interest and entertainment. This can be particularly valuable for single seniors who want to avoid social isolation as they age.
Additionally, all-inclusive communities such as CCRCs will offer access to quality long-term care services as needed. This is a motivator for retirees who do not want the burden of care to fall on the shoulders of their children or other family members.
Source of funding and selecting the right community
One reason some retirees may prefer to age at home is the investment required to access top communities in desirable parts of the country. CCRCs, in particular, may require entry fees ranging from a few hundred thousand dollars to well over $1 million.
For the most part, retirees look to the equity in their home to finance these entry fees and income and portfolio resources to fund the ongoing monthly fees. If the sale of the home doesn’t align with the initial moving costs, there may be ways to access liquidity from a portfolio tax-efficiently by utilizing margin or portfolio loans.
Depending on the type of community and the type of residency contract, there may also be tax benefits to consider. If that is the case, it’s important to consult a wealth advisor and tax advisor to identify strategies to maximize those potential deductions. Additionally, the sale of a primary residence may trigger a capital gain tax that may need to be planned for.
Price is just one of many factors that should be considered when selecting the ideal community. One of the biggest qualitative factors for many is location. Proximity to family, doctors, houses of worship and neighbors may narrow the selection. On the other hand, retirees may seek out a “destination community,” which could mean heading toward a big city or a sandy beach, depending on your preferences.
Summary
Deciding to downsize or move to a retirement community is a big financial and lifestyle decision. According to a recent AARP study, about three-quarters of those 50 years old would like to stay in their current homes or communities for as long as possible, and about half of those ages 18–49 feel the same.1 Retirement communities can be a good solution for those seeking high-end amenities, a low-maintenance lifestyle, social engagement and possible healthcare services.
Other topics in this series:
- Financial Considerations for Aging Parents
- Aging is a Team Sport
- Financial Considerations for Aging in Place
1 https://www.aarp.org/pri/topics/livable-communities/housing/2021-home-community-preferences/
ABOUT THE AUTHOR
James Ciprich, CFP®, MBA
Jim is a Partner, Wealth Advisor and Investments Leader in our Morristown, NJ, office. Serving a broad range of clients, he has a particular focus on retirees considering care and housing options. Jim founded legacy firm RegentAtlantic’s Senior Solutions practice specialty. He is often asked to speak at retirement communities and client events and is frequently quoted in the media. Jim also serves on an advisory council to the MIT AgeLab. He holds the CERTIFIED FINANCIAL PLANNER™ certification and has an MBA and a BA in Economics from Rutgers University. He served as an adjunct professor at Fairleigh Dickinson University in the CFP® program. Jim is a past president of his local estate planning council, and he has also served as a trustee for Morristown United Methodist Church. In recent summers, he has volunteered with Appalachia Service Project. In a prior career, Jim worked in the music industry, where he was awarded multiple RIAA-certified gold and platinum albums.
CONTENT DISCLOSURE
This information is for educational purposes and is not intended to provide, and should not be relied upon for, accounting, legal, tax, insurance, or investment advice. This does not constitute an offer to provide any services, nor a solicitation to purchase securities. The contents are not intended to be advice tailored to any particular person or situation. We believe the information provided is accurate and reliable, but do not warrant it as to completeness or accuracy. This information may include opinions or forecasts, including investment strategies and economic and market conditions; however, there is no guarantee that such opinions or forecasts will prove to be correct, and they also may change without notice. We encourage you to speak with a qualified professional regarding your scenario and the then-current applicable laws and rules.
Advisory services are offered through Corient Private Wealth LLC and its affiliates, each being a registered investment adviser (“RIA”) regulated by the U.S. Securities and Exchange Commission (“SEC”). The advisory services are only offered in jurisdictions where the RIA is appropriately registered. The use of the term “registered” does not imply any particular level of skill or training and does not imply any approval by the SEC. For a complete discussion of the scope of advisory services offered, fees, and other disclosures, please review the RIA’s Disclosure Brochure (Form ADV Part 2A) and Form CRS, available upon request from the RIA and online at https://adviserinfo.sec.gov/. We also encourage you to review the RIA’s Privacy Policy and Code of Ethics, which are available upon request.
Our clients must, in writing, advise us of personal, financial, or investment objective changes and any restrictions desired on our services so that we may re-evaluate any previous recommendations and adjust our advisory services as needed. For current clients, please advise us immediately if you are not receiving monthly account statements from your custodian. We encourage you to compare your custodial statements to any information we provide to you.