Brat
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DH and I are ‘a bit’ older than most of you and are considering our housing options in about 5 years, looking at retirement communities. This issue for us is personal, but for many of you it may be a concern for your parents, they may ask your opinion.
Givens: The non-profit community has a history of providing a quality life at all its stages and is financially sound. The results of health department inspections of dining and health care facilities are good. The history of monthly price increases, what it includes, and charges for care (compared to other similar facilities in the community) are reasonable. The ‘life-style’ is suitable (some are into dressing for dinner, we are more laid-back).
None of the above is an option if the potential resident’s finances don’t pencil. Most have an entrance fee that is driven by the housing selected – a form of life lease paid up front. The fee typically amortized over a couple years (3 to 5). Some potential residents want their money back (50% - 100%) so the communities are offering refundable entrance fees in exchange for a higher entrance fee. My analysis of the ‘cash back’ programs I have seen is that they don’t pencil out for the resident. Consider the fact that the refundable entrance fee’s purchasing power decreases over time while the cash saved from the lower entrance fee can be invested. Here are some examples from one community:
5-yr Amortized 80% Refundable 100% Refundable
$231,888 $394,210 $440,587
$132,177 $224,701 $251,136
$202,271 $343,861 $384,315
Financial gurus, tell me I am wrong. Is there a ‘tipping point’ where refundable is better than the 5-yr amortized entrance fee? Assume that the cash returns 6%/yr compounded (invested in a balanced no-load mutual fund) and inflation is 3.2%/yr.
Givens: The non-profit community has a history of providing a quality life at all its stages and is financially sound. The results of health department inspections of dining and health care facilities are good. The history of monthly price increases, what it includes, and charges for care (compared to other similar facilities in the community) are reasonable. The ‘life-style’ is suitable (some are into dressing for dinner, we are more laid-back).
None of the above is an option if the potential resident’s finances don’t pencil. Most have an entrance fee that is driven by the housing selected – a form of life lease paid up front. The fee typically amortized over a couple years (3 to 5). Some potential residents want their money back (50% - 100%) so the communities are offering refundable entrance fees in exchange for a higher entrance fee. My analysis of the ‘cash back’ programs I have seen is that they don’t pencil out for the resident. Consider the fact that the refundable entrance fee’s purchasing power decreases over time while the cash saved from the lower entrance fee can be invested. Here are some examples from one community:
5-yr Amortized 80% Refundable 100% Refundable
$231,888 $394,210 $440,587
$132,177 $224,701 $251,136
$202,271 $343,861 $384,315
Financial gurus, tell me I am wrong. Is there a ‘tipping point’ where refundable is better than the 5-yr amortized entrance fee? Assume that the cash returns 6%/yr compounded (invested in a balanced no-load mutual fund) and inflation is 3.2%/yr.