Senior Living Communities: Entrance Fee vs. Rental Options

When the time comes to put your retirement plans in motion, making sense of the many options for senior living—and their related expenses—can be a daunting task. Fortunately, once you have a better idea of how each option aligns with your personal needs, you’ll be well on your way to making this stage of life the most rewarding one yet.

Determining where and how you want to live is a critical step toward creating a fulfilling retirement lifestyle. But first, you need a solid understanding of the various types of senior living available to you.

You won’t be surprised to find that communities vary greatly in the living space and amenities they offer, but you might not expect to find so many different financial models that affect the cost of the senior living types you might be considering.

You may find it easiest to think of the majority of communities falling within one of two categories: communities with senior living entrance fees and senior living with no entrance fees.

Introduction to Senior Living Options

When you begin researching senior living options, you’ll quickly discover the wealth of options available for older adults eager to enjoy retirement on their own terms.

The Growing Need for Senior Living

The size of the senior living market makes sense when you consider that about 20% of the U.S. population is 65 or older, and the number is steadily rising. In fact, according to the U.S. Census Bureau, the percentage of Americans aged 65 and older grew as much between 2010 and 2020 as the five previous decades (1960-2010).

This is largely due to the Baby Boomer generation, which began turning 65 in 2011; by 2030, all Boomers will be 65 or older. Advances in medicine also mean people are living longer. While various government agencies vary slightly in their predictions, all agree that Americans’ life expectancy will continue to rise and will reach well over 80 years by 2054.

That means more older Americans to house, and the diverse senior housing market reflects the broad interests and needs of this audience. Recognizing that an estimated 60% of older adults will need some level of support in their lifetime, many seniors are planning ahead by choosing communities that deliver the retirement lifestyle they want now, along with promises of additional care in the future.

Early planning can offer numerous benefits, including the peace of mind that comes with having a home for life and access to health care. That predictability and stability can be very comforting during a stage of life filled with unknowns. Depending on the type of community you choose, you may also be able to take advantage of tax benefits and protect your assets for your heirs.

Types of Senior Living Communities

Distinguishing between the different types of senior living communities is one of the greatest challenges you’re likely to encounter, largely because the terms are often used interchangeably and incorrectly. For example, many people believe—wrongly—that nursing home and Assisted Living mean the same thing. They’re actually quite different.

Independent Living communities are ideal for generally healthy, active seniors who don’t need supportive care to navigate daily living. These residents enjoy being part of a community of peers in the same stage of life and appreciate the freedom that comes with maintenance-free, worry-free living. They enjoy the amenities and activities designed especially for senior interests.

Assisted Living residents need some degree of support with activities of daily living, such as bathing, grooming, and managing medications. They remain largely autonomous but have a support system in place that offers a helping hand with dignity and respect while also helping ensure they can remain independent for as long as possible.

In some cases, you’ll find Independent Living and Assisted Living communities that operate independently, but other times, they will be neighborhoods within a larger community called a Continuing Care Retirement Community (CCRC).

CCRCs are sometimes also referred to as Life Plan communities. That’s because, as the name suggests, they give residents a plan for the remainder of their life. Residents typically enter a CCRC as an Independent Living resident, so they’re able to take advantage of the community’s services and amenities right away.

Then, if their health needs change as they age, they have priority access to a continuum of care within the community, such as Assisted Living, Memory Care, and Skilled Nursing (what people usually mean when they say “nursing home”). Many CCRCs also offer rehabilitative therapy and long-term care.

Understanding Entrance Fees, Buy-Ins, and Rental Options

Once you have a better idea of which type of senior living community suits you best, you’ll need to consider the different financial structures and what fits with your budget.

What Are Entrance Fees and Buy-Ins?

Many senior living communities, especially those that offer a continuum of care, require an upfront entrance fee that, paired with a monthly service fee, gives residents access to housing and the community’s services and amenities. The amount of this one-time fee—which you might also hear called a buy-in—depends on the contract type and whether it’s refundable or nonrefundable.

Nonrefundable fees are usually a lower cost of entry but don’t typically return money to the resident or their estate if they move or pass away after a set timeframe. Refundable entry fees, on the other hand, retain assets for future use by the resident or their heirs.

It’s worth noting that some stand-alone Independent Living, Assisted Living, and Skilled Nursing communities also require certain fees to gain access to the community, but these fees are significantly lower and don’t factor into your long-term care or finances the same as an entrance fee.

Rental Options: An Overview

As an alternative to the entrance fee, some senior living communities offer rental agreements. These are very similar to a rental contract you might have with a landlord or property management company for a regular apartment or private home. The agreement is short-term and paid month-to-month.

The difference is that these communities typically offer a higher level of service and amenities than a traditional rental, such as maintenance-free living and access to an array of senior-friendly services and amenities.

Renting can be an attractive option because it provides all the convenience and benefits of living in a senior living community, but with minimal upfront investment (in most cases, like other rental agreements, you can expect upfront costs to be limited to application fees and a security deposit). In addition, some older adults prefer this option because they don’t want to pay the higher premiums for health care they may never need and because they have greater flexibility if they want to move elsewhere.

On the other hand, renting means you’re not investing in your future, so if you need more care, you’ll need to access it at market rates. Renting also changes your potential tax benefits, and no portion of your rental agreement is refundable, so you’re not holding over any assets for future use.

Other Costs and Considerations

After homing in on the type of senior living community that suits you best and exploring the types of payment arrangements you can expect, you’ll need to think about the actual costs associated with the communities that make it to your shortlist.

How Costs Vary Across Communities

Like any other housing, many factors influence the cost of a senior living community. Location, the age of the community, and the scope of amenities are some considerations. Other variables include the size of the residence you’re considering, whether it’s a private home or apartment, and the quality of finishes within your living space.

It’s also important to understand exactly what is included as part of your monthly fee. For example, you may be responsible for providing your own cable and internet. Many communities also offer tiered dining plans that affect your monthly obligation.

As noted above, the entrance fee for a CCRC depends on the type of contract the community offers. While all provide for housing and access to the community services and amenities, the differences are in how health care costs are handled:

• Type A (Life Care): Predictable living expenses with little to no increase in monthly payments if additional care is needed. Care is provided at rates well below open market.
• Type B (Modified): Includes a set number of days of care at current market rates or ongoing care at a predetermined discounted rate.
• Type C (Fee for Service): Access to additional care on a fee-for-service basis in addition to the monthly fee.

Choosing the Right Financial Model

Ultimately, there’s no right or wrong choice when it comes to choosing a senior living community. The best place is the one that satisfies your long-term financial goals, delivers the lifestyle you want for your retirement, and, most importantly, feels like home.