How Retirement Communities Work

Choosing a retirement community is a big decision. Your choice will affect your – or your loved one's – finances, quality of life, and in many cases,  health and longevity. Here’s an overview of the four main types of retirement communities, how they work and their approximate cost.

Independent Living

Also called senior apartments or 55-plus communities, independent living facilities are for seniors who don’t need any special medical care or assistance with daily activities. They consist of private apartments that usually include a kitchen or kitchenette and come in sizes ranging from studios to two bedrooms. Rent can range from $1,500 to $3,500 a month, according to the senior living website APlaceforMom.com. Rent depends on apartment size, geographic region and amenities. Some independent living communities also have a high buy-in fee. Others have a small entrance fee of perhaps $750 to $1,500, and still others have no buy-in or entrance fees at all. 

Some independent living facilities include utilities, meals, housekeeping, basic maintenance and scheduled transportation for errands and doctor visits in the monthly rent, while others assess these charges separately. Social activities and outings typically cost extra. Overall, the costs can be similar to what you’d pay if you continued to live at home, but independent living communities offer a maintenance-free lifestyle and potentially greater opportunities to socialize.

Assisted Living

Assisted living communities are for retirees who don’t need the high level of care provided by a nursing home, but do need some assistance with "activities of daily living." Assistance might include help getting dressed, and bathing and toileting assistance. Medication reminders might be included. Assisted living can also be appropriate for patients with early stage memory loss, dementia or Alzheimer’s who need extra help, supervision and security. 

The average monthly assisted living rate for a private room, board, housekeeping and some personal assistance was $3,550 per month in 2012, according to the MetLife Mature Market Institute Market Survey of Long Term Care Costs. The lowest rate of $2,355 per month was in Arkansas, and the highest, at $5,933 per month, was in Washington, D.C. 

Nursing Homes

Living in a nursing home is for patients who need extensive medical care and is the next-closest thing to hospital care. Nursing homes also offer assistance with daily living activities, such as eating, dressing, getting around and bathing. Some nursing homes are set up to feel more like residences, while others feel more like hospitals. 

The annual cost of a private nursing home room averaged $90,500 in 2012, according to MetLife’s survey, with a semi-private room coming in not far behind, at $81,000. Because nursing homes are so expensive, it’s a good idea to consider purchasing long-term care insurance well before you might need it.

It isn’t always possible to get into the nursing home you want, when you need it. Many have waiting lists.  Some do not accept Medicare patients. Also, some facilities are only open to certain categories of patients, such as patients who require acute care. Nursing homes also have somewhat of a bad reputation for elder abuse and other problems. Consumers can get ratings of nearly 16,000 nursing homes nationwide from U.S. News and World Report, which also offers guides on how to choose a nursing home, how to pay for it and how to ensure good care.

Continuing Care

Continuing care retirement communities specialize in providing a long-term home for aging retirees.  Residents can start out in independent living while they're self-sufficient, then have the option to transition into assisted living and nursing care if needed, without having to relocate to a new facility. 

According to the AARP, continuing care facilities are the most expensive type of retirement community. Entrance fees can range from $100,000 to $1 million; monthly fees on top of that range from $3,000 to $5,000 or more depending on housing type, care level and other choices.  The cost also depends on the type of contract the resident opts for.

A life-care contract, also called an unlimited contract, is the most expensive up front, but locks in a long-term price. A modified contract covers specific services for a certain term, and the price can go up at the end of that term.  A fee-for-service contract can be thought of as a pay-as-you-go plan. While it requires no commitment, you will always pay the current market price. 

The Bottom Line

Along with the considerations above, it’s important to evaluate the financial stability of any facility you’re considering, especially if it has a large up-front fee. You should also check the facility’s complaint history.  Before committing to a community, see whether you can arrange a short-term stay, perhaps two nights, to get a sense of what it’s like to live there.

For more information, see Alternatives To Nursing Homes, Long-Term Care: More Than Just A Nursing Home and Top 5 Strategies To Pay For Elder Care.