Selecting a retirement community can be a complex decision. Each type of community can offer a different set of services and the associated pricing structures may not follow a standardized model. Comparisons between communities can be difficult, and the long-term implications of the different alternatives may not be clear-cut, further clouding the decision. For the senior exploring the various options, it can be a confusing experience. While factors such as location of the property, the types of living accommodations offered, the total size of the community, and the service programs desired are a personal matter, other aspects of the decision have ramifications for the senior, his or her family and heirs.

Retirement housing can be found in small, private homes with as few as a handful of residents, to large communities comprised of hundreds – or even thousands – of residents. In terms of affordability, a wide variety of choices are available from which to choose. From modestly priced or subsidized facilities through luxury community, seniors can choose retirement housing that most closely meets their needs and budgets. Although a senior must typically be at least 62 years of age to join a community, most retirement community residents are in their seventies or eighties. To a varying degree, all communities provide a host of services – such as meal preparation, transportation, activities and housekeeping services.

To some people, “retirement community” and “nursing home” are synonymous. Nothing could be further from the truth. The retirement housing industry typically offers four levels of care – Independent Living, Assisted Living, Dementia/Alzheimer’s Care, and Skilled Nursing Care. In California, senior housing providers of Assisted Living, Dementia/Alzheimer’s Care and Skilled Nursing Care must be licensed and comply with a comprehensive set of regulations. They are regularly inspected, and evaluated to standardized performance standards. While Independent Living communities are not required to be licensed, many providers choose to obtain their license in order to provide a greater breadth of services to their residents.

Independent Living, as its name implies, provides the least amount of personal care and places its emphasis on providing a quality lifestyle experience for the senior. At this stage, the retiree is able to manage activities associated with daily living, and needs little or no personal care assistance. The majority of seniors seeking retirement housing fall into this category. They needing little in the way of personal care services, but often desire assistance with housekeeping, maintenance, meals, transportation or other lifestyle services. Independent living accommodations range from shared or private room choices through full-sized apartments or cottages. Common area amenities can include luxuries such as swimming pools, saunas, billiards rooms, libraries, private theaters, fitness centers, and restaurant-style dining rooms.

As personal care needs increase, the senior may need help with one or more activities of daily living – or ADLs, as they are referred to in the industry. These care needs may be transitional -- recovering from an illness or injury, for example -- and may be medical or non-medical in nature. These personal care needs may be met through supplemental service programs offered directly through the retirement community (often for an additional fee), or brought in through an outside home-health or companion service provider. If the Independent Living community is a licensed facility, it will require that all outside providers meet certain criteria before being allowed on premises.

The next level of care is Assisted Living. While California governs the types of services that can and cannot be performed at this level, a typical Assisted Living resident would need a modest amount of personal or medical care assistance to accomplish the tasks of daily living. These activities may include medication management, assistance with bathing, dressing, personal hygiene, and escorting services. Some communities go a step further and provide services for residents requiring injections (diabetics), oxygen, certain healing wounds, and even hospice care. Some communities will allow a healthier spouse to share an assisted living unit with a spouse who requires assisted living care services, while others do not. Most accommodations are smaller than those found in Independent Living, and range from semi-private rooms through full-sized apartments, although amenities such as kitchens, garages, and outside patios or balconies can be difficult to find.

Alzheimer’s/Dementia care is a specialized type of care that typically provides services found in an Assisted Living community, but the living accommodations are kept secured (locked) for the protection of the resident. In addition, care and lifestyle services are designed to meet the unique needs and abilities of memory impaired residents. Alzheimer’s/Dementia care may also be offered in some Skilled Nursing facilities, or though special hospital programs. Accommodations are kept simple for the sake of the resident, and size is smaller than in an Assisted Living community. Common areas feature furnishings and items that are familiar and comfortable.

Skilled Nursing Care is the fourth level of care available, the one most often associated with the elderly, although only a small percentage of seniors live in a nursing home. Nursing home residents receive the medical care and associated services directed by their physicians. Activities and social programs are less extensive then those found in other care levels since the primary focus is on maximizing patient health. Living accommodations are typically a shared or private room, with common areas that can include areas for music, television, reading, or other pastimes.

Most seniors who are considering retirement housing options look for either Independent or Assisted Living, where lifestyle factors are paramount. When selecting the appropriate facility, it is important to choose one that has the levels of care needed now, and in the near future. This minimizes the need to make a second move later on, often during a time of crisis. Additionally, some communities will only accept applicants who meet certain physical or mental health standards. This means that moving to another type of retirement community may not be and option at a later point in time, should the resident’s health decline.

Once a senior has determined the appropriate level of care and the approximate price range that would be affordable, the next consideration involves selecting the type of financial arrangement that best meets his or her needs.

Of all of the different types of financial arrangements, this one is the easiest for most people to understand. With a rental pricing structure, the resident pays a modest entry fee or deposit, and a more substantial monthly fee. Pricing is set on a monthly basis, with residents typically paying extra for supplemental care or other services incurred. Rental communities are easy to join, and easy to leave should the resident wish to move out. Many seniors prefer to live near their children and other family, yet with today’s mobile world, children may frequently move or be transferred to other parts of the country. With rental communities, residents can easily give notice to move and stay close to their families.

It is often easier to be accepted into a rental community since their entrance requirements are less stringent. This can be a benefit if the senior is beginning to experience health problems, and may no longer qualify for admission to another type of retirement community. Seniors in a rental community do not acquire equity in the property, so any prior residences sold before the move may be subject to the capital gains tax.

Some retirement communities allow the residents to buy their units, as they would with a condo or other property. In addition to the mortgage costs, there are usually monthly service fees for ancillary services provided, as there would be in other types of retirement communities.

There can be complications when the resident dies or moves-out from the community since the sale of the unit can be regulated. If the community is not 100% occupied, the resident selling his or her unit is competing against other, potentially newer and better unsold units within the community. In addition, the community may require that all or part of the equity generated from the sale be given back to the community, and that all buyers be screened and approved by the community before the close of the sale. With some communities, the monthly fees continue until the unit is sold, even if the resident has left the community.

It is also important to explore what the additional charges would be for nursing care or other care services. Some communities offer a discount to their residents, but even with the discount the additional costs can be substantial. Couples who both require services face the highest charges.

While this option is rarely available in California, a few projects do exist. The tax implications are less clear, and depend upon how the contract is structured. Resale of the membership is often strictly regulated, as it is with an equity community, and can therefore be difficult. Other issues involve managing day-to-day operational issues when the residents self-manage the project. Health care services may or may not be included or available, and should be explored before joining.

A continuing care retirement community guarantees that the retiree will receive nursing and other care services throughout his or her life, for as long as the services are needed. To join the type of community, the retiree must first take a comprehensive physical and mental assessment to determine if he or she is able to live at the basic residential level. An entrance fee is paid prior to move-in, with a monthly service fee charged thereafter in exchange for the right to occupy a selected apartment or unity, and for the ancillary services rendered. As the senior requires assistance, the care is provided at little or no extra cost beyond the cost of the regular monthly service fee.

Some equity or rental communities promote themselves as offering a “continuum of care” rather than “continuing care.” With a “continuum of care”, care services are available at the community, but are not included in the service fee. The similarity in terms can be confusing.

Refundable and non-refundable entry fee pricing arrangements are available, each with their advantages and disadvantages. A non-refundable plan is generally less expensive, and a better choice for a younger senior. A portion of the entrance fee may be considered as pre-paid medical expenses in certain cases, resulting in a significant tax benefit. If the senior is older or wishes to have a portion of the entrance fee refunded to the estate upon death, a refundable plan may be a better choice. Tax consequences vary between entrance fee plans, however, so consult a tax advisor before deciding. Since residents do not have equity with a continuing care retirement community unit, capital gains taxes may be incurred from the sale of the property prior to move-in.

The decision to move to a retirement community is probably the most significant decision that a senior can make. The quality of day-to-day living experiences and the financial impact in terms of cost, tax consequences, and benefits to heirs are all a part of the decision. The complicate matters, all retirement communities are different. That means that a considerable amount of time and effort must be spent to evaluate alternatives. Many fine communities exist here in the San Diego area, however, so with a little effort, the right community can be found to meet every need.

• Easy entry, transfer or exit
• Less comprehensive assessment
• Preserves capital
• Nominal up-front costs

• Higher levels of care may not be available on site
• Long term care costs not assured

• Assured care at little or no extra cost
• Possible Refund
• Possible tax write-off
• Rigid state licensing

• Comprehensive assessment
• Large initial outlay
• May not have any refund at death
• May have imputed interest

• Section 1034 deferral may apply
• Fee Title
• Normal tax write off
• Assured care at little or no extra cost

• Estate must sell in competition with other units
• Fair market value effectively controlled by management
• Largest initial outlay

• Facility can repurchase
• Possible gain on sale
• Services care packages may be available

• Buyers can be restricted by age & health
• Fair market value effectively controlled by management
• No section 1034 deferral
• Quality of services vary