Paradox of CCRC Funding!

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Vg55Fan
Posts: 9
Joined: Sat Jan 14, 2017 10:09 pm

Paradox of CCRC Funding!

Post by Vg55Fan » Tue Jun 11, 2019 8:51 pm

We, newish bogleheads, are contemplating moving to a CCRC in the next 12-18 month. We plan to pay about 1-1.5m, entrance fee by cashing high six figures from our VG taxable acct, and selling the house (equity in mid-six figures). Our dilemma is, how and when to cash the VG taxable funds? And, how to manage /minimize market risk, taxes and uncertain timing.

We felt a smart strategy would be to sell-off equal amounts (say 200-300k) in 3-4 lots, spread over 12-15 months, to reduce the market risk, but here are the kickers:

- Expected Cap Gain 40-45%, or 400k CG tax: 80k
- Best case: can wash-off CG against pre-paid medical expenses, 40-45% of non-refundable entrance fee, if taken in the same year.
- Lining up CG proceeds, in the same year as entrance free, can be quite challenging, in itself! Because I need money in hand before paying the fee.
- There is a fair degree of tentativeness, with actual timing of the move, including alternatives that might emerge.
- Obviously, we don’t want to cash-out and pay 80k CG tax, with no use for large funds.
- Another major concern is, protection from a potential market downturn, given current high values; and need for funds
in the near term.
- Discussion with CPA suggests that if I cash-out, 12-18 months ahead of paying the entrance fee, I’ll pay full CGTax, 80k; and 400-600k, in tax losses can be carried forward, and perhaps, best used for Roth conversion (i.e., implicitly, 80k tax to get 400-600k in Roth?)

BOTTOMLINE: how and when to sell taxable funds with 40-45% CG?

Background:
He, early 70; she, late 60s, emerging medical issue
Taxable funds: 1m
Tax-deferred/ retirement funds: 1m, each
Net-worth: 3m+; home equity mid-6-fig; all investments in diversified VG etfs
Monthly income, incl SSB: 12k

Thanks a million, for shining the light!

bloom2708
Posts: 6221
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Paradox of CCRC Funding!

Post by bloom2708 » Wed Jun 12, 2019 8:57 am

If you have an 18 month window, I would sell 50% of the gains in 2019 and 50% in early 2020. You could wait until December 2019 to sell the first 50%. Maybe your plans will firm up in the next 5 months?

This must be a luxury/top of the line CCRC for that entrance price. You are going to liquidate all of your taxable and put all of your home equity into the community?

What is the monthly fee after buying in? I'm sure you have done your due diligence.

If you need the $1 million for the entrance fees, will you pay the tax from withdrawals from tax-sheltered accounts? I guess just have a plan to pay the tax as you can't pay it from the proceeds if you need the proceeds. If that makes sense.

Hopefully others can chime in with their ideas.
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

User avatar
HueyLD
Posts: 6875
Joined: Mon Jan 14, 2008 10:30 am

Re: Paradox of CCRC Funding!

Post by HueyLD » Wed Jun 12, 2019 10:29 am

"Emerging medical issues" could be a problem.

I happen to know a couple of Tax-Aide volunteers who could not get into a CCRC of their choice due to medical issues.

I guess it depends on which medical issues a CCRC doesn't like.

Topic Author
Vg55Fan
Posts: 9
Joined: Sat Jan 14, 2017 10:09 pm

Re: Paradox of CCRC Funding!

Post by Vg55Fan » Fri Jun 14, 2019 11:01 am

Hi Bloom2708,

Your caution is spot on and very much appreciated. We, too, are skeptical of blowing home-equity and most of taxable funds, in one go, to pay CCRC entrance fee! These CCRCs are bit over the top with 7-9k, in monthly fees. All our lives we have been conservative savers / spenders, but choices seem more clear, now. We feel, our joint retirement funds, under 2m, and monthly income, can cover emergencies and other expenses over 20-30 years, we hope (?).

On brightside, CCRC might give more control and financial predictability, thereby lower contingencies funds, but we certainly hope we have sufficient cushion!

Will appreciate help with the following, that worries us:

- Are we overextended by spending home-equity and taxable funds for a CCRC contract?
- How to minimize market downside, in cashing-out about 1m, in diversified VG ETFs with 50% in CG, within 12 months?
- Is it possible to lock-in 400k CG, and move it forward, ie., realize in 12-18 months?

Many thanks for sharing your insights and experiences.
VGfan!

Dottie57
Posts: 6160
Joined: Thu May 19, 2016 5:43 pm

Re: Paradox of CCRC Funding!

Post by Dottie57 » Fri Jun 14, 2019 11:12 am

Vg55Fan wrote:
Fri Jun 14, 2019 11:01 am
Hi Bloom2708,

Your caution is spot on and very much appreciated. We, too, are skeptical of blowing home-equity and most of taxable funds, in one go, to pay CCRC entrance fee! These CCRCs are bit over the top with 7-9k, in monthly fees. All our lives we have been conservative savers / spenders, but choices seem more clear, now. We feel, our joint retirement funds, under 2m, and monthly income, can cover emergencies and other expenses over 20-30 years, we hope (?).

On brightside, CCRC might give more control and financial predictability, thereby lower contingencies funds, but we certainly hope we have sufficient cushion!

Will appreciate help with the following, that worries us:

- Are we overextended by spending home-equity and taxable funds for a CCRC contract?
- How to minimize market downside, in cashing-out about 1m, in diversified VG ETFs with 50% in CG, within 12 months?
- Is it possible to lock-in 400k CG, and move it forward, ie., realize in 12-18 months?

Many thanks for sharing your insights and experiences.
VGfan!
I hope the 7-9k in fees is for 2 people.

Topic Author
Vg55Fan
Posts: 9
Joined: Sat Jan 14, 2017 10:09 pm

Re: Paradox of CCRC Funding!

Post by Vg55Fan » Fri Jun 14, 2019 4:34 pm

yes! its for 2.

Topic Author
Vg55Fan
Posts: 9
Joined: Sat Jan 14, 2017 10:09 pm

Re: Paradox of CCRC Funding!

Post by Vg55Fan » Fri Jun 14, 2019 9:46 pm

yes! its for 2.

delamer
Posts: 7833
Joined: Tue Feb 08, 2011 6:13 pm

Re: Paradox of CCRC Funding!

Post by delamer » Sat Jun 15, 2019 11:17 am

I don’t have anything to offer regarding the capital gains.

But will throw in a couple thoughts:

1. You two are young for entering a CCRC, based in my observations of their populations. I certainly understand the choice if you are being driven by health concerns, however. Otherwise, wait 8 to 10 years.
2. How will your monthly income be affected by such a large CCRC deposit?
3. What will the survivor’s income be impacted when the first of you dies?

The last 2 questions go to affordability.

Good luck.

User avatar
mrspock
Posts: 355
Joined: Tue Feb 13, 2018 2:49 am
Location: Vulcan

Re: Paradox of CCRC Funding!

Post by mrspock » Sat Jun 15, 2019 1:40 pm

So $1.5M + $7-9k per month in fees? Wouldn’t the fees alone require $2.1-2.7m to fund at a 4% SWR? Or am I missing something here? Correction: Ohh... nm I didn’t notice the 12k/month in income.

Feels really pricey to me, can one not hire a nurse or does Medicare pay for in-home assistance/care? The fees alone feels like I could hire 1.5-2 full timers for that.

Can you sell your spot if you change your mind? Is this a one way trip?

stan1
Posts: 6952
Joined: Mon Oct 08, 2007 4:35 pm

Re: Paradox of CCRC Funding!

Post by stan1 » Sat Jun 15, 2019 1:44 pm

I'd think about it carefully. In my area you are young to enter a community like this. By about 10 years. Maybe things are different in other locations. Other residents would be mostly 10-20 years older.

What's the alternative? Pay as you go. It gives you a lot more flexibility first and foremost. Second it may cost less (a lot less). Our experience with our parents is that when it comes time to pay money to get good care there's no problem finding it. Once a pay as you go facility sees your assets waiting lists will suddenly not become an issue. The ethics of it may not be right but they will move someone else to create a space for a high net worth pay as you go patient. Sure there may be a place where someone found this did not happen; we've seen it happen in about 10 different facilities that parents transitioned through. We also found that there is no way to know the best facility until you have a need. In several cases what we thought would be the best facility did not turn out that way. Especially if dementia is involved there are many different care options and you won't know which is best until you need the care.
Last edited by stan1 on Sat Jun 15, 2019 2:04 pm, edited 3 times in total.

ChrisC
Posts: 774
Joined: Tue Jun 19, 2012 9:10 am
Location: North Carolina

Re: Paradox of CCRC Funding!

Post by ChrisC » Sat Jun 15, 2019 1:48 pm

delamer wrote:
Sat Jun 15, 2019 11:17 am
I don’t have anything to offer regarding the capital gains.

But will throw in a couple thoughts:

1. You two are young for entering a CCRC, based in my observations of their populations. I certainly understand the choice if you are being driven by health concerns, however. Otherwise, wait 8 to 10 years.
2. How will your monthly income be affected by such a large CCRC deposit?
3. What will the survivor’s income be impacted when the first of you dies?

The last 2 questions go to affordability.

Good luck.
Hmmmm, I wouldn't say they are too young, especially if the wait is 1.5 years out to get into the CCRC of their choice and there's emerging medical issue that might be impactful in the foreseeable future but not enough to bar them from entering the CCRC. We just submitted a wait list application for a CCRC and we will be only 68, 66 by the end of the year, and we anticipate a 4 year wait list with us stretching that to another 4 years, if we don't get the unit we want at the end of 4 years. The average age in our contemplated CCRC appears to be mid 70's, but in looking at the resident base this appears to be a very active crowd of 420 plus people. The level of activity at our CCRC appears to rival in activity and in amenities some of the vibrant, restricted age 55 communities we've seen.

Nonetheless, $1 to 1.5million is a lot of dough to blow on entrance fees and $7 to 9K is a major monthly hit, particularly if the $7K is for one person who might be affected by a lower survivor income stream. But the OP says they currently have $12K in monthly income stream. I would be concerned about the high entrance fee levels if I wanted to leave something to heirs and had some legacy planning for family members. What type of business model/contract type does this CCRC use: is there any equity in the unit you're placed into or is this strictly a Type A contract, where the entrance fee front loads all continuing care, including LTC that you might never need?

Otherwise, if there isn't any legacy planning concerns -- seems the OP can blow that dough on this CCRC if it makes them happy and provides them with peace of mind.

delamer
Posts: 7833
Joined: Tue Feb 08, 2011 6:13 pm

Re: Paradox of CCRC Funding!

Post by delamer » Sat Jun 15, 2019 2:26 pm

ChrisC wrote:
Sat Jun 15, 2019 1:48 pm
delamer wrote:
Sat Jun 15, 2019 11:17 am
I don’t have anything to offer regarding the capital gains.

But will throw in a couple thoughts:

1. You two are young for entering a CCRC, based in my observations of their populations. I certainly understand the choice if you are being driven by health concerns, however. Otherwise, wait 8 to 10 years.
2. How will your monthly income be affected by such a large CCRC deposit?
3. What will the survivor’s income be impacted when the first of you dies?

The last 2 questions go to affordability.

Good luck.
Hmmmm, I wouldn't say they are too young, especially if the wait is 1.5 years out to get into the CCRC of their choice and there's emerging medical issue that might be impactful in the foreseeable future but not enough to bar them from entering the CCRC. We just submitted a wait list application for a CCRC and we will be only 68, 66 by the end of the year, and we anticipate a 4 year wait list with us stretching that to another 4 years, if we don't get the unit we want at the end of 4 years. The average age in our contemplated CCRC appears to be mid 70's, but in looking at the resident base this appears to be a very active crowd of 420 plus people. The level of activity at our CCRC appears to rival in activity and in amenities some of the vibrant, restricted age 55 communities we've seen.

Nonetheless, $1 to 1.5million is a lot of dough to blow on entrance fees and $7 to 9K is a major monthly hit, particularly if the $7K is for one person who might be affected by a lower survivor income stream. But the OP says they currently have $12K in monthly income stream. I would be concerned about the high entrance fee levels if I wanted to leave something to heirs and had some legacy planning for family members. What type of business model/contract type does this CCRC use: is there any equity in the unit you're placed into or is this strictly a Type A contract, where the entrance fee front loads all continuing care, including LTC that you might never need?

Otherwise, if there isn't any legacy planning concerns -- seems the OP can blow that dough on this CCRC if it makes them happy and provides them with peace of mind.
It always is good to get multiple perspectives. I am sure different CCRC’s have different populations.

My specific point regarding the entrance fee is that if they are getting income from that money now, then the income will no longer be available once the fee is paid. For instance, if the $12,000/month includes $3,000/month from dividends/interest on the entrance fee money, then their total income goes down to $9,000/month as soon as the fee is paid.

Post Reply