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John Healy
Hi, I’m John Healy, chief investment officer of Healy Wealth Management. Today I want to talk about an important decision several of our clients are facing. Whether to buy into a continuing care retirement community. These communities promise lifetime housing and care, but they require a substantial upfront investment, often several hundred thousand dollars and sometimes more. That entrance fee, It’s not just a payment.
It’s an investment decision, and it should be evaluated at the same level of scrutiny as any other financial commitment. A recent Wall Street Journal article told the story of a woman who paid $945,000 to move into a facility in New York. The community promised her family a 75% refund under certain conditions. After the facility filed for bankruptcy, the family found out the circumstances were such that they were only going to get about a third of what they were promised.
And this isn’t an isolated case. Since the pandemic began, at least 16 continuing care communities have filed for chapter 11 bankruptcy, affecting more than 1000 families and wiping out over $190 million in entrance fees. When we advise clients on decisions like these, we treat the entrance fee like any other investment. We conduct fundamental financial analysis. We review the audited financials of the community, looking closely at their debt obligations, their occupancy trends, and especially their debt service as a percent of free cash flow.
These are metrics like analyzing any investment. Our key to understanding risk. If a community needs constant new people moving in to meet its obligations, that’s a huge red flag. During economic slowdowns or housing market dips, those people moving in can slow dramatically, leaving the community exposed. And residents who are typically unsecured creditors, in essence, often have limited recourse if the facility goes bankrupt or restructures.
Beyond solvency, we examine what guarantees are actually in place, if care levels change, or ownership changes hands. Are those some of the circumstances that would affect the refund? We also help clients compare their options. Should you commit capital to a community now, or should you stay at home and bring in care as needed? What’s the break-even point between the two?
How does this decision impact your financial plan, your overall estate plan, your liquidity, and your sense of security? The bottom line is this: buying into a retirement community isn’t just about lifestyle. It’s a major financial decision with long term consequences. And like any decision involving your wealth, it deserves disciplined analysis, not just trust in marketing materials or promises.
If you or someone you love is thinking about this kind of move, we are here to help. We bring experience, analytical experience, financial business analysis, data, perspective. We can guide you through the decision so you can feel confident and not uncertain about the future. Again, I’m John Healy, chief investment officer of Healy Wealth Management. Please hit the like button and subscribe to our channel.
Thank you again for taking the time to hear this video. We’d love to hear back from you with any questions, comments, concerns, or just give us a call if you want to talk about anything regarding your financial life. We’d love to help. Thank you.