How to Evaluate Retirement Communities

Bewildering array of variables can be navigated, and here's a valuable guide.

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Making the decision to enter a full-service, continuing care retirement community (CCRC) may not be easy. It can be triggered by the conclusion, often reached with reluctance, that keeping up the old homestead is just too much work. Then there's the process of selling and moving out of a place that may hold decades of precious memories, plus lots and lots and lots of stuff. Selling a home these days is no snap, either. Entrance fees at CCRCs can be steep. Most people pay between $250,000 and $400,000. On top of this, monthly fees for meals, upkeep, and other services can easily run from $3,500 to $6,000 per couple.

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So, there is a lot on the line. And often there's a lot of family pressure. As older people move into their late 70s and early 80s, sons and daughters get worried. The decision to seek an institutional housing solution may be accelerated by emerging signs of frailty and cognitive impairment. Sure, you still can live independently. But maybe it's not such a good idea to be dealing with stoves or handling knives and other cooking implements. A CCRC may be a godsend not only for new residents but also their family members, who may have become increasingly involved caregivers over the years.

Plus, haven't some CCRCs had serious financial issues? Didn't a big company file bankruptcy? Yes, Erickson Retirement Communities did so last year but residents did not lose their entrance fees and a new company now owns its communities. And wasn't there a government report about industry problems? Yes, the U.S. Government Accountability Office issued a report on CCRCs earlier this year. It cited problems at several communities in an industry that is largely regulated by the states. But CCRC supporters note that having a few issues in a universe of more than 1,850 communities may actually represent a pretty good performance record during a once-in-a-lifetime downturn in the economy and real estate values.

To simplify a tough set of decisions, break the process down into smaller pieces. The first three questions you need to answer about moving into a CCRC require little direct knowledge of these communities:

1) Is it time for you to make the move? The average age of new entrants to CCRCs has been creeping higher and is now about 82 years. That's mostly the result of a good trend -- people are staying healthy into much later ages and thus defer the decision to move into a community setting.

2) How much money will you have to support yourself in a CCRC? This does require some knowledge of the services covered by CCRCs in general and by a specific community in particular. Most CCRC contracts generally cover an apartment or cottage, housekeeping services, at least one meal a day, exercise and activities, and lifetime medical care. The degree of care and possible out-of-pocket costs can vary among CCRCs, so details about services and required health insurance are important to understand.

3) Where in the country do you want to live? There are CCRCs all over the place. This location decision often reflects the desire to be near family and friends.

[See Youth Movement at Retirement Communities.]

Once these questions are out of the way, there are many specific questions about a community's facilities, its residence packages (increasingly, CCRCs offer multiple plans), staffing and resident support levels, and financial resources.

Before asking these questions during a visit or information call, there is a very helpful annual report on the CCRC industry that is prepared by a major trade group, the American Association of Homes and Services for the Aging, and a major consultant and investment adviser for CCRCs, Ziegler Capital Markets.

Their annual guide surveys the largest CCRCs in the country and provides helpful industry trends as well as a detailed statistical look at individual communities. This data provides a useful set of operational benchmarks on situations a typical consumer would be hard pressed to know -- staffing levels, size, financial strength, management stability, and the like.

Here are some of the most important benchmarks that can guide your fact finding at a specific community:

Among the CCRCs with the most living units (spread over multiple locations), the average long-term debt per unit was $74,750 in 2009 and $73,909 in 2008. Spreading long-term debt only over a system's independent living units -- which generate most CCRC revenues -- average debt was $181,565 in 2009 and $177,205 in 2008. Because a CCRC has to have enough money to provide services, pay staff, and service its debts, its debt load can be a key measure of its financial viability.

Average revenues per unit for the 25 biggest systems was $54,011 in 2009 and $53,600 in 2008. For independent living units, it was $184,205 in 2009 and $155,623 in 2008.

Among the 100 largest systems covered by the report, the average CCRC had 2,213 residents in 2009 and 1,257 staff members (expressed as full time equivalents). This worked out to 57 employees per 100 residents. That's a key service ratio, although you need to also ask about a particular CCRC's services and staffing duties to better understand its staffing ratio. Also, keep in mind that these figures cover all campuses that a single system operates. You'll need to find out more about the specific campus you are considering. Generally, the bigger systems have lower staff-to-resident ratios.

On average, the CEOs of the 100 biggest CCRC systems had been in their jobs an average of nearly 10 years at the end of 2009. The average tenures for chief financial officers was nearly 7.5 years, and it was 5 years for chief operating officers. Management stability can be another important measure of the quality of a CCRC's oversight.

The report also provides details on the types of living units at each CCRC, including independent living, assisted living, nursing home care, and memory support units for people with Alzheimer's or dementia.

[See Feds Study Retirement Community Risks.]