Academic Assets

Spending Your Golden Years Near Campus

Article tools

Printer friendly	E-mail article	Subscribe	Order reprints
	Discuss any Chronicle article in our forums
Latest Headlines First Person From Job Candidate to Stalker For a new Ph.D. searching for her first job in her field, the line between the two can be blurry. Career News Keep Up the Quality It's time for colleges and universities to improve academic, not just administrative, productivity. On Course Back to High School In a new book, an assistant professor of English finds radical new sources of inspiration for his discipline in K-12 classrooms. Career News Sensible Compromises So you don't have the perfect tenure-track position at the perfect college in the perfect town? Welcome to Earth. Resource Salaries: Faculty | Administrative Presidential pay: Private | Public Financial resources: Salary and cost-of-living calculators Career resources: Academic | Nonacademic Library: Previous articles by topic | by date | by column Career Talk, Ms. Mentor, and more... Landing your first job On the tenure track Mid-career and on Administrative careers Nonacademic careers for Ph.D.'s Talk about your career Blogs

By John Vineyard

Retirement communities near college campuses are mushrooming, attracting retired professors and administrators as well as alumni and other professionals.

The beauty of these continuing-care retirement communities is that you can make one decision that provides for housing and medical care for the rest of your days, regardless of your health. They enable people to feel sure that they will not be a burden to their children and that they will receive competent, comfortable care. And they offer the potential of living in a vibrant community where people share similar interests and have many opportunities to pursue studies, hobbies, and exercise. Among the retirement communities springing up by college campuses are ones near or affiliated with Dartmouth, Haverford, and Oberlin Colleges as well as the Universities of Arizona, Florida, and Virginia, and Penn State, Indiana, Iowa State, and Cornell Universities.

They may offer a simpler life, but the decision to move into a continuing-care community requires retirees to make some complex decisions. The financial arrangements offered by these communities vary. And the contracts require getting some expert advice regarding the choice of wording, features, and contingencies.

The most elementary arrangement is what I'll call the Big Kahuna: Basically you surrender most of your money and receive a promise to be taken care of for the rest of your days, regardless of any changes in your health or how long you live. Most such arrangements include a large, nonrefundable upfront fee and a monthly maintenance fee. You trade the equity you've built up in your home for the assurance that health concerns will never leave you destitute. Some facilities allow for a limited refund on a sliding scale if you leave or die within a very short period after entering, but the value of this refund generally drops very quickly. The decision is essentially permanent. You might move in, live healthily there a short time, and die suddenly without ever needing medical care. Or you might move in, become disabled, and linger on for decades, requiring the facility to provide expensive services, year after year. So a continuing-care community operates rather like an insurance company as well as a residential real-estate rental operation.

The Little Kahuna differs from the Big Kahuna in that you pay an even higher entry fee in return for the opportunity to keep some equity interest in your residential facility. If you want to preserve the option of moving elsewhere or saving something for your heirs, this might be attractive. Every case and every contract will vary, but it may be more advantageous to choose the Big Kahuna, with its lower entry fee, and invest the difference between the two fees with a good financial manager or in life insurance. In general, the retirement community wants to keep any appreciation on its own facility. A potential technical issue with the Little Kahuna is the possibility that the IRS considers the initial amount that you pay above the cost of the Big Kahuna as a loan from you to the retirement community, so that an imputed interest rate is calculated. This means, as the IRS analyzes it, that by paying the higher initial fee for the Little Kahuna, you have actually made a loan to the retirement community at the prevailing interest rate. If you pull out of your deal, the refund you get from the retirement community is treated partly as a return of capital and partly as interest you've earned for the use of that capital. And the IRS will want you to pay income tax on that interest.

The third option is an arrangement where you take responsibility for insuring yourself for some portion of your health expenses, and in return pay a lower entry fee. This may be attractive when people have already bought long-term care insurance and want to keep it. A variation of this may simply be a fee-for-service agreement with the retirement community, where you are billed for medical expenses as they occur, which also would require you to buy a long-term care insurance policy.

Still another concept in continuing care is to structure the retirement community as a cooperative housing corporation, giving residents a share of ownership in the whole facility. This has the advantage of allowing some tax benefits of ownership to be passed through to the residents, such as the deductibility of mortgage interest and real-estate taxes. Ownership shares can be bought, sold, or bequeathed, so that some of the overwhelming finality of the Big Kahuna can be avoided. Combine that with the newer concepts in organizing the facility as an academic community. The proposed Arizona Senior Academy in Tucson, for example, is designed to make it easy for academics and professionals to combine a senior community with continued academic work -- and we can see that it is likely there will be a blossoming of extremely innovative and interesting communities in coming years.

The number of factors affecting the decision to move to a retirement community is so great that there is no simple financial formula that can tell you whether or when. Some people say flatly that the last thing they want is to be segregated with a lot of other old people from the same social caste. Others can't wait for the chance to move and free themselves of cumbersome responsibilities. The primary decision is not a financial choice but rather a lifestyle choice, so individuals have to draw their own road maps.

Once you've decided to make the move, a few financial considerations should be studied. The major choice is probably the matter of timing. The larger the fixed fee in proportion to the total expense, the better the argument to move sooner than later. The smaller the fixed fee in relation to the total expense, the later you might want to move. It's fairly clear that if you have your faculties and are in reasonable health, it is cheaper to contract for most of the services yourself rather than buy them bundled with the community. After all, you don't have to cover all the services and overhead that the retirement community provides its members.

But you never know how long it might be before you need someone else to be making those arrangements for you. Some attractive retirement communities have waiting lists many years long and won't let you in if your health is poor.

Paradoxically, the range and popularity of such communities is probably the single main reason for concern if you are a baby boomer considering such a choice some years ahead: With the retirement of the baby boomers, we can expect an overdevelopment of these communities, meaning that some will prosper, some will struggle, and some will go under, possibly taking the life savings and the best-laid plans of the residents with them. It's very likely that there will be some kind of a bust in these facilities in the next 20 years. After all, it's such an intriguing idea that developers will run with it until the market is oversaturated. A second constraint is already evident: The cost and scarcity of well-qualified medical and other staff. This means that some facilities will end up being reorganized to provide a lower level of medical care than promised in the contracts.

The asymmetry of the agreement between the retirement community and the resident obliges you to study the financial solvency of a prospective residence as closely as possible. When the automobile market softens, General Motors builds fewer cars, but unlike most businesses, which downsize when market conditions weaken, retirement communities have a very high level of fixed costs and obligations. They have high break-even occupancy levels and face costs related to health care that generally rise faster than the cost of living. They would be very vulnerable to a return of inflation.

Another risk is the possibility that some other type of senior living arrangement will become more popular, so that some of the communities seem undesirable to future waves of retirees. A very specialized type of community is probably at the greatest risk of going out of fashion. Finally, the negative rule of community real estate is that once membership drops, the fixed fees that the other residents have to cover rise sharply and can spiral upward to the point that nobody is willing to pay. Those who stay on board and pay faithfully end up losing the most. There are no magic ratios to show whether your investment is sure to be safe, but thinking about these possibilities will at least enable you to ask some of the right questions. Naturally, those who need to scrape together every penny in order to qualify need to think hardest about the decision.

One feature of the federal tax rules helps sweeten the decision in favor of continuing care: The portion of the entry fee and the monthly maintenance fees you pay related to potential medical expenses is deductible from federal income taxes. You don't have to be sick to take the deduction, as you would if you were on your own and compiling eligible medical expenses. You might join a community at age 65, live to be 90, and never have any medical expense. But you could still have the deductibility of the portion of those fees you paid for medical costs. On the one hand, if you don't join a retirement community and you have no significant medical expenses, you will have neither the direct medical expenses nor the deductibility. But once you decide to make the move, this feature can potentially save thousands of dollars in taxes over an extended period.