Should I choose the 50% refundable or 100% refundable entrance fee?

In case you missed it the first time, here’s a classic Senior Housing post.
You’ve done most of the work!  You have picked a community and an apartment that you like.  The community offers two different refundability options for this apartment.  All that’s left is to decide on the type of contract to pick.  Which one should you choose?

Let me walk you through the decision.

First of all, you’ll notice that the lower refundability contract is “more expensive” than that higher refundability contract.  For instance, if you have a 100% refundable, $100,000 contract, you would expect the 50% refundable contract to be $50,000.

That’s almost never the case.  It’s higher.  The 50% refundable contract will set you back about $70,000.  The reason for this is simple: the community prefers that you choose the 100% refundable contract.

Like most people, retirement communities prefer more money rather than less.  It helps them to get a bigger entrance fee, since they can use the money for other things during the time that you live in the community.  (There’s a certain amount of money that communities keep on hand for entrance fee refunds, but beyond that, they can use the money as they see fit.)

That’s why the 50% refundable contract is usually not as good of a deal as the 100%.  However, that doesn’t mean that you shouldn’t choose the 50%.  There are two reasons that residents decide on lower entrance fee contracts:

  • They have lower assets and can’t afford to pay the 100% entrance fee, and
  • They don’t care as much about their estate getting a refund after they die.

For those that have sufficient assets and want a refund for their children and loved ones, the higher refundability options are usually the best bet.  It just depends on who you are and what you want out of senior housing.