CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

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Vg55Fan
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CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by Vg55Fan »

We are contemplating moving to a CCRC/Life Plan Community, with major consequences to our finances, and more predictable future expenses and health costs, we hope! Bogleheads’ thoughts, comments, wisdom, words of caution, would be highly appreciated and hopefully, will help steer clear of major faux pas.

Background:
Self (71) and DW (63), both retired, are planning to move to a CCRC in 12 months, due to health reasons. The CCRCS reviewed have entrance fees around 1m+ (with zero, refund.... aaa oooch! :oops: !), and monthly fees run, 8-9k for two, for a comprehensive, type-A contract. Annual monthly fee increases an average 2-3%.

- Invested assets - 3.25m; Plus, Home equity - 700k. Taxable funds - 1.25m; His and her tIRAs – 1m/each;
- Portfolio AA, 50:50, all passive indexes. IRAs in conservative target-date funds. LT Care insurance, 200~300k/each.
- LTCG, in taxable – 500k; Tax rate MFJ - 22%. Virginia tax rate, 5.75%.

Expect to pay entrance fee with home-sale, netting 700k, plus 300-500k from taxable accts.
- Current monthly CF, includes: his and her SS, 2 govt pensions, plus his RMD: 13k
- Potential income, not currently used (based on 4% rule, for her tIRA and taxable accts): 5-7k/ monthly.
- Anticipate a small need for legacy funds after donations to charities/med research.

We feel, moving to CCRC would be a major life-event and turning point for our life-plans and remaining resources. We certainly don’t want to over-extend ourselves or be too cautious.....i.e., classic, greed vs fear. :mrgreen: (On a side note: While the selected CCRCs offer improved quality of life, we feel our real-estate values are nearly equal; although one leads to using up all equity vs. preservation and growth!)

Questions:
i. Is this plan a reasonably conservative and prudent move? In the worst case, can our tIRAs give 20 years' sustenance, assuming that we have a roof? What can we count the tIRA balances for generating CF and drawing down the principal?

ii. Need to realize more than half, about 300k, in LTCG (and pay 20.75% CG US & VA taxes), to ensure sufficient funds to pay the entrance fee, and reduce market-risk on appreciated etfs in taxable accounts.

iii. Should I consider this time to re-evaluate and re-position assets for a more predictable financial picture? What is the downside to maxing out CG, considering very limited upside, in the next 12-18 months, other than transferring assets on stepped-up basis, vs paying out, approx 20% in CG tax, now?

Best wishes & Happy Holidays :sharebeer
retired@50
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by retired@50 »

The CCRC buy in and monthly fees sound awfully high to me.

I was under the impression, after working with my in-laws, that if you had a high "buy-in" fee, that the monthly fees would be lower. My in-laws chose a community where the monthly fee is high (comparable to what you mention), but there was no buy-in fee at all.

It sounds like you're going to pay both ways... Will any part of the buy-in fee be refunded to heirs down the road, or are you actually purchasing the "condo" in the facility? Is it transferable in any way?

Regards,
This is one person's opinion. Nothing more.
delamer
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by delamer »

What is CF?

I wouldn’t consider a $1 million fee and $8,000/month “prudent and conservative” at your level of assets & income. But neither would I consider it irresponsible. You can afford it. If is likely that your fixed income and investments will increase close to the 2%-3% projected increase in monthly fees.

Have you run through scenarios for income and expenses when one of you dies? What will the survivor have left in terms of pensions and Social Security? How will the death affect the fees paid to the CCRC?

Long-term care costs will be much more predictable by moving to the CCRC. But remember that your medical costs for doctors, prescriptions, hospitalizations, etc. will not be reduced/controlled.

I don’t understand your question in iii.

Good luck with your decision.
Last edited by delamer on Fri Dec 06, 2019 7:13 pm, edited 1 time in total.
EdNorton
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by EdNorton »

You're too young for that. Your wife is far too young. Unless you both have severe health issues, I wouldn't consider it. :sharebeer
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Katietsu
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by Katietsu »

I am having trouble picturing something with such a high buy in and monthly fee. Would you be in an independent living apartment situation or patio home at this time? Does this include entertainment, golf, meals or anything extra? Do either of you have a condition that makes assisted living or nursing home care likely in the near future and would be expected to last for many years?

Do they have some kind of visitor pass or could a current resident host you? I know these are probably unlikely. I am just trying to figure out a way to limit the possibility that a week after you move in you find you hate it. Is the $1 million completely non refundable? Meaning is there no grace period - 60 days, a year or better yet, a couple - where you can move out and get most of the buy in back. Have you thoroughly reviewed the financial health of the facility.
Last edited by Katietsu on Sat Dec 07, 2019 8:04 am, edited 1 time in total.
ChrisC
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by ChrisC »

EdNorton wrote: Fri Dec 06, 2019 7:12 pm You're too young for that. Your wife is far too young. Unless you both have severe health issues, I wouldn't consider it. :sharebeer
Not so sure about being too young. You want to be 5 years too early, rather than 5 minutes too late. I'm 66 and DW is 68 and we're on the 4 year long wait list for the CCRC of our choice in NC -- this provides an option for us to consider when we we're called for entry into the CCRC; could be 4 or 8 years from now for us, or it could be 2 years. We would make the move mainly for a lifestyle change as well as long term care security for us to be on one campus.

The OP certainly has enough financial assets and income streams to handle this pricey move to a Type A CCRC, particularly if there is no need or desire for leaving behind most of their current assets to heirs (including charitable organizations). And if the pension and SS retirement stream of income alone would be sufficient to retire the monthly management fee from the CCRC, it seems they have little major risk of running out of funds from their IRAs or taxable accounts, especially with $1 million each in tIRAs -- the wife, however, might want to consider some serious Roth conversions to avoid major tax torpedo issues down the road. I think with this major transaction it would be well advised to ensure optimal tax planning -- for instance, does it make sense to do robust conversions at this stage for DW, how much of the monthly management fee from the CCRC (or perhaps the entrance fee itself) can be deductible as a medical expense if major health issues sideline the OP or his DW to assisted living care, in which case, the monthly management fee might be tax affected and would neutralize some of the tax torpedo consequences.

Nonetheless, I wouldn't consider a Type A CCRC, if I had LTCi, which apparently the OP and his DW seem to have obtained, unless the Type A CCRC is providing you with some sort of discount as a result of having the LTCi. Otherwise, it seems that the LTCi would be wasted if it can't be used in the CCRC. We have similar financial footing with the OP in retirement accounts, with a CSRS pension (and a survivor's benefit), that throws off almost the same level as OP's pension streams, home ownership with lots of built-in equity, and LTCi policies of $520K for each of us, but I'd never would consider the Type A CCRC -- as I want to be able to transfer 90 percent of my net worth to my heirs and the rest to charity or educational institutions. And perhaps like OP's wife, my wife is delaying her SS retirement benefits until she reaches 70.

But we are primarily looking at a Type C facilty with equity ownership in the unit we'd purchase and reside. Our Type C CCRC facility is expensive, cottages go from $1.1million to $2.5 miliion and condo/apartments go from $400K to 1.1 million, on a campus with a 60 bed skilled nursing facility, with over 440 plus residents. The key to us is that we would own the unit and if we leave the campus, the equity in the unit goes to our heirs -- and there has been significant equity appreciation in these units over the last 8 years since the Great Recession ended in 2011-12. Our monthly maintenance fees would be around $6K for two of us, and if we moved to the skilled nursing facility on campus, we'd get 90 days free care at the facility and the rest would be paid from our LTCi at discounted rates from the CCRC, currently at around $180 per day. (Our LTCi has a 90 waiting period and covers 5 years of LTC with a daily benefit amount that exceeds the current discounted rate for care at this CCRC.) The skilled nursing facility would have state of the art care and has less of an "institutional" feel to it than the SNFs we have seen over the years for our relatives.

From my standpoint, I think the OP would be best served, financially, if they could find a Type B or C facility, with equity ownership. The OP should be able to use their LTCi for assisted living or skilled nursing care at such a facility, without question. We have a few of these Type B or C equity ownership facilities in NC but not sure there's any in Virginia. We spent 35 years in Northern Virginia and its exhurbs, and when I was looking around for my Mom, around 12 years ago, the pickens for suitable facilities was kinda of slim for our needs, though we knew some neighbors who told us about church affiliated CCRCs that seemed to work for some folks. A Type A CCRC seems to have too much risk for losing some or all of your entrance fee even if the facility has a refundable option -- most will not refund after you've been there at least 2 years, and those that have a better refund policy generally will refund 90 percent of the entrance fee with no equity appreciation or earned interest -- I think Erickson has a policy like that for its CCRCs.
Chester Peake
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by Chester Peake »

Don't forget about property tax if you have ownership of the unit. Could be considerable on a $1 million property.
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RickBoglehead
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by RickBoglehead »

Every CCRC I ever looked into (a handful) refunded at least 80% of the fee, and the top fee was not even $200,000. I would never consider handing anyone $1 million non-refundable dollars. OP should look elsewhere. Imagine if the CCRC is not a good fit?

We considered a CCRC for my blue collar, non-college-educated, in-laws some years back. Nice place, close to us, had good rehab facility (they were actually in it at the time). When we took the tour, I noted nametags on the doors of the rooms as we walked by. At least 2 of them I knew, because nearly 40 years ago I took classes from them or their deceased spouses.

When my wife and I discussed this option for my in-laws, we concluded that the residents were very much white collar and highly educated, and would be a poor fit. In addition, the dining options were almost cruise-ship quality, and my in-laws were very much the Dinty Moore crowd. We went with independent living followed by assisted living, paid 3 and 4 years of it respectively.
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alrick
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by alrick »

The entry fee and ongoing monthly fees seem high to us. We have visited and completed preliminary paperwork at two CCRCs in our northern New England state. Both organizations are not-for-profit entities and have decades long operating success with great "customer satisfaction" testimonials. We also personally know some of the residents.

Entry fees are in the $300,000 - $450,000 range depending on the size and type of living unit desired. Entry fee payback to estate starts at 100% and decreases to 50% over first five years and then stays at 50%. So if resident dies shortly after going into the CCRC his/her estate would receive most of the entry fee.....but if death occurs after 5 years or more, the estate still receives 50% of the original entry fee. We have read of some CCRCs that have a higher % refund fee than the 50%.

Monthly fees are in the $2500 - $3500 range, with COLAs of 2-3%. Monthly fees are higher if resident is in assisted living or nursing care levels of care. In both CCRCs we are considering there is the provision for lifetime care even if the resident's resources can no longer support monthly fees. As a non-profit there is a reserve to support residents that may find themselves in this situation.
However, the in-depth financial analysis performed prior to being admitted to the CCRC need to determine that the available subsidy is not likely to be triggered.

Bottom line: Shop around and consider alternatives, as a Boglehead you can do better!
delamer
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by delamer »

alrick wrote: Sat Dec 07, 2019 8:20 am The entry fee and ongoing monthly fees seem high to us. We have visited and completed preliminary paperwork at two CCRCs in our northern New England state. Both organizations are not-for-profit entities and have decades long operating success with great "customer satisfaction" testimonials. We also personally know some of the residents.

Entry fees are in the $300,000 - $450,000 range depending on the size and type of living unit desired. Entry fee payback to estate starts at 100% and decreases to 50% over first five years and then stays at 50%. So if resident dies shortly after going into the CCRC his/her estate would receive most of the entry fee.....but if death occurs after 5 years or more, the estate still receives 50% of the original entry fee. We have read of some CCRCs that have a higher % refund fee than the 50%.

Monthly fees are in the $2500 - $3500 range, with COLAs of 2-3%. Monthly fees are higher if resident is in assisted living or nursing care levels of care. In both CCRCs we are considering there is the provision for lifetime care even if the resident's resources can no longer support monthly fees. As a non-profit there is a reserve to support residents that may find themselves in this situation.
However, the in-depth financial analysis performed prior to being admitted to the CCRC need to determine that the available subsidy is not likely to be triggered.

Bottom line: Shop around and consider alternatives, as a Boglehead you can do better!
To a large extent, the CCRC decision is similar to deciding what kind of house to buy — although with even greater financial consequences. Some people can afford a $750,000 house but choose to buy a $500,000 one instead because it meets their needs and they have other things they’d rather do with the $250,000. But others in the same position will spend the $750,000 because their needs and goals are different.

So it isn’t a question of whether Bogleheads can do better, CCRC-wise, but whether it is affordable, meets their needs, and the cost still allows for meeting other financial goals. And I’d be very surprised if they haven’t shopped around already.
ChrisC
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by ChrisC »

delamer wrote: Sat Dec 07, 2019 10:23 am
To a large extent, the CCRC decision is similar to deciding what kind of house to buy — although with even greater financial consequences. Some people can afford a $750,000 house but choose to buy a $500,000 one instead because it meets their needs and they have other things they’d rather do with the $250,000. But others in the same position will spend the $750,000 because their needs and goals are different.

So it isn’t a question of whether Bogleheads can do better, CCRC-wise, but whether it is affordable, meets their needs, and the cost still allows for meeting other financial goals. And I’d be very surprised if they haven’t shopped around already.
That's a good way of initially looking into buying into a CCRC, but it's a bit more than a home purchase as essentially a LTC policy is being wrapped around the home purchase. And I hate to use this analogy, but with a non-refundable entrance fee, it's not really "buying" a home, but renting space! In the OP's case, they would be renting an expensive home, which might have a lot of bells and whistles on a campus that hopefully provides them with opportunities to meet other like-minded people, with the comforts of major amenities, and with potential LTC on the campus, if needed.
delamer
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by delamer »

ChrisC wrote: Sat Dec 07, 2019 11:15 am
delamer wrote: Sat Dec 07, 2019 10:23 am
To a large extent, the CCRC decision is similar to deciding what kind of house to buy — although with even greater financial consequences. Some people can afford a $750,000 house but choose to buy a $500,000 one instead because it meets their needs and they have other things they’d rather do with the $250,000. But others in the same position will spend the $750,000 because their needs and goals are different.

So it isn’t a question of whether Bogleheads can do better, CCRC-wise, but whether it is affordable, meets their needs, and the cost still allows for meeting other financial goals. And I’d be very surprised if they haven’t shopped around already.
That's a good way of initially looking into buying into a CCRC, but it's a bit more than a home purchase as essentially a LTC policy is being wrapped around the home purchase. And I hate to use this analogy, but with a non-refundable entrance fee, it's not really "buying" a home, but renting space! In the OP's case, they would be renting an expensive home, which might have a lot of bells and whistles on a campus that hopefully provides them with opportunities to meet other like-minded people, with the comforts of major amenities, and with potential LTC on the campus, if needed.
I agree. My main point was to push back on the idea that there is a “Boglehead way” to choose a CCRC. Even two couples with identical assets and income may make different choices because they have different needs and financial goals.
Prudence
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by Prudence »

Wow that is expensive! We just joined a waiting list for an upscale CRCC in a HCOL mid-atlantic metro area. The entrance fee for an approx. 1,500 SF apartment is about $1.2M, 90% refundable. Monthly fee for two is about 8 grand. BTW, we are 73 and 68; expect to wait two or three years to get in. Our deposit is fully refundable.
stan1
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by stan1 »

CCRC's are a luxury purchase. "Most people" can't consider them as an option. OP has the assets and pension income to easily make this decision if it helps simplify their lives. I do agree the provision that does not refund the buy-in fee is of concern. They would need to make absolute certain they want to live in this facility for the rest of their lives through ownership and management changes, demographic changes, family relocations. They may be near kids and grand kids now but what if they move to a different state? Over the course of decades there could be many changes. To me it is risky to lock in decades in one facility but others would make a different decision.

As for the cost if they are in DC metro area there are tens if not hundreds of thousands of federal and military retirees with homes they can sell and pensions to fund monthly expenses who can afford such a place. Sounds like this CCRC is filling a demand and can charge what the market will bear. As a Boglehead I would shop around and make sure this really is the right CCRC as you would for a real estate purchase and an expensive cruise. Do you like the location? Do you like the neighbors? Then as with a cruise or luxury vacation do you like the food, service, and environment? The other residents might be much older (especially much older than your wife). What that means is that many of the friends she makes over the years will get sick, move to assisted living memory care and nursing home, and then pass away and that will repeat multiple times. How does she feel about that? My mom at age 86 lives in a senior independent living apartment (month to month not a CCRC). Her biggest complaint is that she is outliving her friends.
WillRetire
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by WillRetire »

OP:

Health issues are driving this desire or need to move to a CCRC, is that correct?

Being somewhat familiar with CCRCs in medium-high COL areas of Virginia, $1million+ entrance fee is quite high but if that buys you & your spouse the lifestyle of your dreams, then good for you. Beach front living or penthouse luxury, either one could cost that much. Though even so, there should be various options for % refundable.

Make sure the contract has an escape clause where you get close to 100% of entrance fee refunded if you leave within say a year.

This is largely an irrevocable decision. What if you or your spouse becomes unhappy living there?

With your income, assets, and LTC insurance, you have many options, and almost any other option would be more flexible.
E.g.:
CCRC under a fee-for-service plan, or
Luxury condo living or a luxury senior apartment, either one with separately contracted in-home care.

It's probably wise to move out of your home if you anticipate health issues will make it burdensome to maintain the house.

Don't sign any CCRC contracts without reviewing them with an attorney who specializes in elder law. Such contracts are comprehensive health, financial and residential commitments affecting you and your spouse for the rest of your lives.

Generally, the entrance fee does not "buy" you the unit, in the sense that you own nothing. Someone mentioned above that there are some CCRC contracts that allow for an equity stake. Make sure you and your spouse fully understand whether you legally own the unit you select or any fraction of it.

If CCRC really is the best option for you, and if you've found the place of your dreams with an entrance fee of $1m+ where you think you'll be very happy, your plan to sell taxable & incur LTCG sounds reasonable. It will be painful but short-lived. It may throw you into an even higher IRMAA tier if that affects you w/regards to medicare part B premiums and medicare part D premiums. But only for 1 year, hopefully. If you also have to accelerate tIRA withdrawals to cover monthly expenses, those too could throw you into a higher IRMAA tier. (Assuming you pay part B & part D. Being federal govt retirees, maybe you don't.)
NotWhoYouThink
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by NotWhoYouThink »

Some of your buy-in cost, and some of your monthly expenses can be considered deductible medical expenses. Does that help with the CG issue?

What are the rules about staying in the Independent Living apartments? Are wheelchairs allowed? Scooters? Oxygen? At my mom's CCRC there are rules about that, and if you need some of those things they require you to move to Assisted Living, with smaller apartments and more help. Make sure you know what the conditions are that would trigger a required move for one or both of you. I won't say that the prospect of another $1M entry fee would motivate management to push you along to Assisted Living if the Independent Living side is full, but you never know.
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by ChrisC »

NotWhoYouThink wrote: Sat Dec 07, 2019 7:26 pm What are the rules about staying in the Independent Living apartments? Are wheelchairs allowed? Scooters? Oxygen? At my mom's CCRC there are rules about that, and if you need some of those things they require you to move to Assisted Living, with smaller apartments and more help. Make sure you know what the conditions are that would trigger a required move for one or both of you. I won't say that the prospect of another $1M entry fee would motivate management to push you along to Assisted Living if the Independent Living side is full, but you never know.
The business models for CCRCs vary from place to place, but it seems that all models suggest that once you pay for entry into the CCRC, the CCRC has an incentive to keep you in the independent living quarters/units rather than in the assisted living/homecare or skilled nursing facility sections of the CCRC. (I'm not sure, from what you post, that your mother is in a CCRC, rather than a Independent Living/Assisted Living Facility like this one here, where my BIL stays: https://www.sunriseseniorliving.com/com ... rview.aspx).

It seems it would be far less costly to the CCRC to manage people in the independent living quarters rather than assisted living or skilled nursing facility, especially for CCRC Type A contracts where the entrance fee essentially "front loads" or advance pays projected LTC costs for a resident -- the CCRC comes out ahead whenever residents don't use expensive home care or skilled nursing care that the CCRC is obligated to provide. One of my concerns about CCRCs is whether any given one has the capacity to care for residents who need skilled nursing care. For example, the CCRC I'm considering expanded its skilled nursing quarters to accomodate 60 residents and now is considering a further expansion, and it's already at full capacity, so what happens when they're at full capacity and you become suitable for that level of care? At this CCRC, you get sent to a comparable skilled nursing facilty -- well that's not what I want or bargained for!

The OP here says his contemplated move to the CCRC is for "health reasons" but CCRCs in my neck of the woods require certification from a primary physician that the potential resident is capable of indendent living and has no major medical issues that will derail independent living in the immediate future. The OP's one time entry fee should cover him and his DW in case they ever need skilled nursing care and the CCRC has an incentive in keeping them in independent living quarters, so I don't see the prospect of their CCRC management pushing them into assisted living or skilled nursing care. I think his biggest risk for now would be with health issues: whether they would be able to gain admission into the CCRC -- we've heard of one couple denied admission because one had been diagnosed with MS although she was capable of independent living, as certified by her physician.
NotWhoYouThink
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by NotWhoYouThink »

My mom is in a CCRC with a Life Care contract. The incremental cost of caring for someone in the ALC wing is material, but if moving her to AL frees up a spot for a couple, paying a high entry fee plus a new monthly fee much higher than her fee as a single person who has been there for a while, it might be worth their while to move her. Statistically, people who move from IL to AL don't usually survive all that long. Not specifically at this place, but just in general.

The pressure to move is real. Part of it is for her safety, I understand that. But not all of it.
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Vg55Fan
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by Vg55Fan »

Wow, Bogleheads! …Rich, diverse views definitely helped us a whole lot…and hope, we all gained, as much.

OP’s Update:
• Clearly, an equity model with pay-as-you-go, type-B or C contract would be most favorable, financially, but these are mostly in NC, with waitlist we can’t afford for our 12-18 month deadline! And, not much escape from NoVA winters.

• We feel reassured that 1m+ CCRC isn't so outlandish, as it first seemed. We visited, stayed over and met residents in No/SoCal, FL, DC and recently in NC, and had good vibes.

• We’ve seen letters supporting tax credits, 35-40% on the entrance (non-refundable portion) and monthly fees, which makes zero-refund attractive, and moreover, the actuarial-insurance premiums are, more likely than not, over-priced. So far, I heard confirmation of 100~200k, in first-year credits, and this may require more digging in.

• Irrevocable-decision is a major deterrence, even with 5 years to be fully vested. Senior luxury apartments with healthcare/service contracts (if and when available?) seem appealing, but are untested; although this market may grow over time. Goodwin House and others are rolling-out a stay in place contract, at around 5k/month, for concierge-type services.

• On the flipside, irrevocable-decision may offer more control from future uncertainties and allows self-selection upfront, though one has to live with the decisions for a long time.

• Curiously, many for-profit CCRCs compete with 503(c) or foundation-based tax-exempts, even after raking-in 20-16%, off the top, of entrance and monthly fees; Although, the latter may be more transparent, responsive, and perhaps better positioned for long-term viability.

• The charing-off of entrance-fee seems somewhat opaque. Not sure, what are amortization basis, and relevant practices, regulations or conventions?

• As an interesting comparison, CCRCs may be analogous to auto-leasing vs ownership. :shock:

Questions:
a. Why not use this major life-event, i.e., move to CCRC, to rejig taxable accounts, since it offers a clearer picture with greater certainty of future costs, cash needs, and risk tolerance?

b. If so, then does it make sense to cash out a large part of LTCG, with off-set against tax-credits from the entrance and monthly fees?

c. How to do 300-500k Roth in DW’s tIRA, avoid future tax bite (RMD due in 2027), without dogging taxes, as current income.

d. On an unrelated note, what is the downside to taking a defensive position in taxable accounts, such as variants of gold ETFs, especially after a CCRC move with a more predictable future outlook, and the current high market valuation and unlikely market upside? (understandably, Bogleheads don’t profess speculative timing… ).

Cheers :beer
WillRetire
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by WillRetire »

Vg55Fan wrote: Mon Dec 09, 2019 11:42 am
Questions:
a. Why not use this major life-event, i.e., move to CCRC, to rejig taxable accounts, since it offers a clearer picture with greater certainty of future costs, cash needs, and risk tolerance?

b. If so, then does it make sense to cash out a large part of LTCG, with off-set against tax-credits from the entrance and monthly fees?

c. How to do 300-500k Roth in DW’s tIRA, avoid future tax bite (RMD due in 2027), without dogging taxes, as current income.

d. On an unrelated note, what is the downside to taking a defensive position in taxable accounts, such as variants of gold ETFs, especially after a CCRC move with a more predictable future outlook, and the current high market valuation and unlikely market upside? (understandably, Bogleheads don’t profess speculative timing… ).

Cheers :beer
I can't answer all your questions, but have one more for you: Are you discussing the contract with an elder law attorney?

Re:Your question c. in which you reference "Roth in DW's tIRA"... The words "Roth" and "tIRA" are mutually exclusive, as far as I know. Maybe I'm wrong.

Re:Your question d. The CCRC contracts I've seen protect patients from being thrown out if they run out of assets through no fault of their own. Before you switch your AA to include a large stake in precious metals, check the contract to see what you may, and may not do in the eyes of the CCRC with your investments. They want you to be prudent so you don't run out of money. They don't wish to have to support you and your spouse through their charity foundation. They may view a major change to AA or to alternate types of investments as imprudent. Also, Gold is not predictable. It is highly volatile.

Your comment about this decision being like leasing a car is concerning. Car leases are short-term, of relatively low consequence to finances, and revocable. CCRCs are long-term, of major & *final consequence to fiannces, health and living arrangements, and irrevocable.
(*)Note: In your case, you may have enough assets & income to afford to walk away from, i.e. lose, the $1m+ entrance fee and enter a different facility. (You did state earlier that it is 0% refundable.)
TN_Boy
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by TN_Boy »

EdNorton wrote: Fri Dec 06, 2019 7:12 pm You're too young for that. Your wife is far too young. Unless you both have severe health issues, I wouldn't consider it. :sharebeer
The OP said they had health "reasons."

Also, in general CCRCs won't let you in unless you qualify for "independent living" (at least the ones I'm familiar with in my area). That is, you *cannot* wait until you have all sorts of problems. Plus, it's a lot harder to move when ill, to make new friends when ill, etc. Point is, if you wait .... the door for this option may close.

That IS a pretty big entry fee the OP is looking at.
Alan S.
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by Alan S. »

Has anyone investigated how this large up front investment is protected in the event of CCRC mismanagement, or financial failure from any cause?

Do any of these communities purchase performance bonds and/or fidelity bonds of sufficient limit for their employees? What about annual audited financial statements?

I know that there has not been a frequency of failures in this area, but you might not want to assume this will continue to be the case?
earlyout
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by earlyout »

Vg55Fan wrote: Mon Dec 09, 2019 11:42 am Wow, Bogleheads! …Rich, diverse views definitely helped us a whole lot…and hope, we all gained, as much.

OP’s Update:

• We’ve seen letters supporting tax credits, 35-40% on the entrance (non-refundable portion) and monthly fees, which makes zero-refund attractive, and moreover, the actuarial-insurance premiums are, more likely than not, over-priced. So far, I heard confirmation of 100~200k, in first-year credits, and this may require more digging in.



Be careful not to confuse tax credits with a deductible expense. Part of the entrance fee and the monthly fees may qualify as medical expense and therefore be deductible on schedule A. Idon't think any of it qualifies as a tax credit. Furthermore excess medical expense can not be carried over to the next year so you would have to deduct the entire entrance fee the first year -- a good opportunity to convert traditional IRA to Roth.
WillRetire
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by WillRetire »

Vg55Fan wrote: Mon Dec 09, 2019 11:42 am ...

• We’ve seen letters supporting tax credits, 35-40% on the entrance (non-refundable portion) and monthly fees, which makes zero-refund attractive, and moreover, the actuarial-insurance premiums are, more likely than not, over-priced. So far, I heard confirmation of 100~200k, in first-year credits, and this may require more digging in.
...
I am unaware of tax credits for joining a CCRC. There may be a partial deduction for healthcare expenses, since a portion of CCRC fees count as prepaid healthcare. Your total healthcare deduction is limited to the amount that exceeds 10% of your AGI; so higher AGI means less you can deduct.

This is a really big life event/decision. If you found a place you love and you can afford, that is terrific. Before signing any contracrs, find an elder law & estate planning attorney to help you navigate the contract & finances. Others on this forum can probably recommend how to go about doing that. An objective expert will be worth their weight in gold (at today's market prices ;)
ChrisC
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by ChrisC »

Vg55F,

Thanks for posting the feedback you've apparently received from the CCRC about the tax impacts on your entrance and monthly management fees. Perhaps you've mistaken the CCRC feedback when you described the impacts as "tax credits" rather than medical expense tax deductions. It would seem some portion of your nonrefundable entrance fee would be deductible as payment for future medical expenses, which if in the magnitude of a $350K to 400K of deductible medical expense, would permit you to do a mega Roth conversion for your DW's tIRA during the year you've paid the entrance fee and shelter a big portion of the Roth conversion income from the major brunt of Federal (and possibly State) income tax.

I hadn't thought about the deductibility of non-refundable entrance fees and there seems to be some literature out there that even Type C CCRCs with nonrefundable fees (we have a 10 percent nonrefundable that's added to the cost of purchasing a unit in our case) might be able to take a medical expense deduction from those fees.
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LilyFleur
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by LilyFleur »

TN_Boy wrote: Mon Dec 09, 2019 1:12 pm
EdNorton wrote: Fri Dec 06, 2019 7:12 pm You're too young for that. Your wife is far too young. Unless you both have severe health issues, I wouldn't consider it. :sharebeer
The OP said they had health "reasons."

Also, in general CCRCs won't let you in unless you qualify for "independent living" (at least the ones I'm familiar with in my area). That is, you *cannot* wait until you have all sorts of problems. Plus, it's a lot harder to move when ill, to make new friends when ill, etc. Point is, if you wait .... the door for this option may close.

That IS a pretty big entry fee the OP is looking at.
Maybe it's a luxury high rise with an ocean view.
Maybe the options for refundable entrance fees are simply too expensive. They can get extremely pricey in VHCOL areas.
krafty81
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by krafty81 »

One way to check solvency is to verify current occupancy of the CCRC. I would not go near anything less than 90%.
TheDDC
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by TheDDC »

I would pass on this offer... unless you really feel you want to complete a transfer of wealth out of your family to the elder care industry.

-TheDDC
Rules to wealth building: 90-100% VTSAX piled high and deep, 0-10% VIGAX tilt, 0% given away to banks, minimize amount given to medical-industrial complex
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Wiggums
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by Wiggums »

stan1 wrote: Sat Dec 07, 2019 1:54 pm CCRC's are a luxury purchase. "Most people" can't consider them as an option. OP has the assets and pension income to easily make this decision if it helps simplify their lives. I do agree the provision that does not refund the buy-in fee is of concern. They would need to make absolute certain they want to live in this facility for the rest of their lives through ownership and management changes, demographic changes, family relocations. They may be near kids and grand kids now but what if they move to a different state? Over the course of decades there could be many changes. To me it is risky to lock in decades in one facility but others would make a different decision.

As for the cost if they are in DC metro area there are tens if not hundreds of thousands of federal and military retirees with homes they can sell and pensions to fund monthly expenses who can afford such a place. Sounds like this CCRC is filling a demand and can charge what the market will bear. As a Boglehead I would shop around and make sure this really is the right CCRC as you would for a real estate purchase and an expensive cruise. Do you like the location? Do you like the neighbors? Then as with a cruise or luxury vacation do you like the food, service, and environment? The other residents might be much older (especially much older than your wife). What that means is that many of the friends she makes over the years will get sick, move to assisted living memory care and nursing home, and then pass away and that will repeat multiple times. How does she feel about that? My mom at age 86 lives in a senior independent living apartment (month to month not a CCRC). Her biggest complaint is that she is outliving her friends.
I don’t have an opinion on this question.

Stan1,

My mom is 90 and her complaint was the food. Not enough variety. Not cooking what she wanted. It was a disaster. Admittedly, she was too healthy and she bonded with some people and got annoyed with the rest. She values her independence. My brother sided with my mom and made it worse. Now he provides her care full time.
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Vg55Fan
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by Vg55Fan »

I can’t thank enough for excellent comments and insights, as we make slow, and hope, steady progress towards ... a dream CCRC!

First of all, WillRite, consulting elder law attorney to reviewing CCRC contract and enterance fee is an excellent idea. We’re in midst of working on an estate plan and it’s likely to overlap with CCRC move and related tax-planning, perhaps; but I question:

i) If contract review would offer leeway for changes to their standard contract, other than getting free-goodies? BTW, my search on this site did not give much info on elder attorneys' provided assistance specifically for CCRCs. Also, not sure if our estate attorney might be quite up on CCRCs, bells and whistles. Any suggestion, where to look?

ii) Yap, you’re spot on gold etf and AA changes, won’t fly!

iii) Lining up Roth conversion for spousal tIRA, deducting pre-paid medical expenses and LTCG tax, require forethought and planning, and a challenge without the right expertise. Agreed, CrisC, NOT to be confused :confused with tax-credits. Any further thoughts?

iv) Also, checking out risk-management, including employee and magmt misconduct and negligence, and coverage through insurance and indemnity bonds, etc., is huge, where an attorney can help.

Thanks a million :greedy :mrgreen: , Bogleheads!!
WillRetire
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by WillRetire »

Vg55Fan wrote: Sat Dec 14, 2019 9:26 pm I can’t thank enough for excellent comments and insights, as we make slow, and hope, steady progress towards ... a dream CCRC!

First of all, WillRite, consulting elder law attorney to reviewing CCRC contract and enterance fee is an excellent idea. We’re in midst of working on an estate plan and it’s likely to overlap with CCRC move and related tax-planning, perhaps; but I question:

i) If contract review would offer leeway for changes to their standard contract, other than getting free-goodies? BTW, my search on this site did not give much info on elder attorneys' provided assistance specifically for CCRCs. Also, not sure if our estate attorney might be quite up on CCRCs, bells and whistles. Any suggestion, where to look?
...
One reason you should have a lawyer review the contract is the same reason you have a lawyer review any major business or financial contract: to protect you. As I stated above, a CCRC LifePlan contract affects your health, your residency, and your finances in a major way for the rest of your life and it is (largely) irrevocable. Why wouldn't you have a lawyer review it? You and your spouse need to read it carefully too, and write down your questions. The lawyer can advise you as to whether the contract is industry standard, and whether you should consider asking to add, modify or subtract terms & conditions.

With the lawyer's help, make sure you completely understand what you are signing up for, what you get in return, and what you don't get. Ask yourselves and the lawyer: What could go wrong?

You mention you are already speaking with an estate planning lawyer. He/she is a good place to start. If he/she is not expert in CCRC contracts, he/she can give you a referral to another attorney.

Your comment about "free-goodies" might indicate you are taking this too lightly. As I stated above, this is not like leasing or buying a car. This is not like joining a country club. You're not joining a social club from which you can easily drop out. The 2 of you are entering into a major contract that will affect your financial, physical and mental wellbeings.
RudyS
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Re: CCRC Move and Cashing-out Portfolio CG – Pros vs Cons!

Post by RudyS »

We searched for a CCRC in Massachusetts. There is a web site run by the commonwealth with a listing of all CCRC's, with links to the web site of each, as well the text of their contract! Very interesting reading.
https://www.mass.gov/service-details/co ... ommunities
We actually moved to a CCRC in May (I've posted several times on this subject) and a half year later are very pleased with our choice.
Wondering if the OP has such a resource in his state?
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