Can I Afford the Monthly Fee at a LifeCare Continuing Care Retirement Community?
Most of us live in a setting where our month-to-month and periodic expenses are very diverse. A typical household budget may involve a dozen or so major categories of expense and 30 or more individual line items. The LifeCare continuing care retirement community (CCRC) monthly fee covers a lot of those line items, and the LifeCare community lifestyle has an impact on a number of others. So you are faced with an “apples and oranges” problem trying to compare your current cost of living with what you will experience living in a LifeCare CCRC.
From my experience in providing financial advisory services to families, comparing their current cash flow with a new living situation is difficult at best. They will claim they know what they spend each month and each year, and there are a number of expenses that occur in a regular, predictable pattern. Unfortunately, there is typically an equal amount of money that goes to pay expenses that are highly variable from month to month, and even year to year.
The good news is that once you get a handle on where, exactly, your money is being spent now, it is fairly easy to determine where it would be spent should you choose to live in a LifeCare CCRC. Then, the answer to the big affordability question is at hand.
The other good news is that it is no longer necessary to dig through mounds of receipts or set up a complex personal accounting system to track what is going on with ALL of your income and expenses. I use a free internet-based program, Mint.com, to track, categorize and summarize (by month) all of my financial transactions. Mint is tenacious in capturing every dollar coming in and every dollar going out. I also have about 40 clients who successfully use the Mint system each month.
Usually it takes about three months of Mint data to understand the realities of your current cash flow, and at that point a simple Excel worksheet (or a Big Chief tablet – remember those?) is all it takes to make a valid comparison between your current cash flow and what you would experience living in a LifeCare CCRC. You might be quite surprised at how many of those nasty bills go away with LifeCare CCRC living. We found that utility bills are pretty much a thing of the past, and grocery shopping is limited (our main meal each day is covered by the monthly fee). The bills for repainting the house and repairing the roof aren’t coming (ever!), and if one of our appliances breaks, it’s not our problem. I don’t even have to change light bulbs in the ceiling –amazing!
I’ve had the opportunity to help many clients with this “before and after” comparison of cash flow, and as a rule of thumb, it appears the LifeCare CCRC monthly fee usually covers about 60 percent of a family’s total monthly expenses. So, if your net income is sufficient to pay the monthly LifeCare CCRC fee and still have about 40 percent left over for remaining expenses, you can probably afford the monthly fee. Of course, a rule of thumb is just that, and every situation is unique, but the cash flow comparison exercise outlined above will give you more definitive answer to the question of affordability.
The real beauty of a LifeCare CCRC—from a financial perspective—is that your future expenses are going to be much more predictable. You can expect regular price increases (LifeCare CCRCs have expenses subject to inflation, too), but you can account for that in your long-range financial planning, and there are a host of unpleasant surprises the typical homeowner gets on an all-too-regular basis (oops, last summer’s drought caused cracks in the basement walls) that will no longer be haunting you.
Finally, the risk of needing copious amounts of cash flow to cover the cost of long-term care is largely mitigated by the LifeCare CCRC’s contract for the continuum of care. Personally, I think I can handle an annual cost of living increase in my monthly LifeCare CCRC fee when compared to the cost of care out of pocket.
Sadly, not everyone can afford to live in a LifeCare CCRC. But if you can (and the tools are available to make a reasonable determination), you will be dealing with a lot less uncertainty in your future cash flow, and concern about what the next unpleasant financial surprise might be. Financial advisors like me also love it – it makes our job so much easier!