Paying for pricey continuing care

Kiplinger's Personal Finance

Before you move to a continuing care retirement community, expect the company to carefully vet your finances.

CCRCs, which promise to provide housing and care throughout residents’ later years, want to make sure applicants can afford the hefty entrance fee — now averaging $320,000 — plus potentially thousands in monthly fees that will rise over time.

The communities typically expect applicants’ total assets when they apply to be twice the amount of the entrance fee, and their monthly income, from such sources as Social Security, annuities and pensions, to be one-and-a-half to two times the monthly fee, according to financial planners.

If you’re considering a CCRC, here are some ways to pay for it:

Sell your house. If you can’t immediately do so, you may be able to pay the entrance fee using a home-equity line of credit. When you sell the house, you pay off the line of credit.

If you don’t have a credit line, set one up months before applying to a CCRC, says Keith Gumbinger, vice president at mortgage research firm HSH.com. Banks are less likely to extend a credit line if they expect the homeowner to repay the debt within two or three years, he says.

Bridge loans that provide the cash needed between the time you buy one home and sell another are hard to come by; they’re almost impossible to get for CCRCs in which you won’t own your residence. There are a few exceptions. For example, Elderlife Financial Services specializes in bridge loans to borrowers entering one of 125 CCRCs it partners with in 42 states.

Some CCRCs will even cover the loan’s origination fee and interest.

If you have to tap retirement accounts for a portion of the entrance fee — triggering a tax bill that could push you into a higher tax bracket — the tax hit can be partially offset by the sizable deduction you may be able to take on the portion of the entrance fee that will cover future health care costs.

If you itemize deductions on your federal return, you can write off medical expenses that exceed 7.5 percent of your adjusted gross income for 2018. The CCRC will be able to tell you how much of the entrance fee, as well as any monthly fees you may pay, is deductible.

Check to see whether a CCRC offers incentives when it has a number of vacancies or units that remain unoccupied. Incentives may include a lower entrance fee, a temporary discount on the monthly fee or free unit upgrades.

Patricia Mertz Esswein is an associate editor and Eileen Ambrose is a senior editor at Kiplinger’s Personal Finance magazine. Send your questions and comments to moneypower@kiplinger.com.

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