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The Cost of Living in a Retirement Community

When planning your retirement, one of the most important decisions you’ll make involves where to live. Moving to a retirement community can offer advantages when it comes to amenities, recreation, and being able to connect with other seniors. However, it’s important to consider what you’ll pay for senior living and how it compares to other options.

Key Takeaways

  • The cost of living in a retirement community can vary greatly depending on geographic location, the type of housing, and the amenities offered.
  • Retiring to a senior living community may entail paying an upfront fee, monthly fees, or both.
  • It’s important to consider how the cost of living in a retirement community compares to staying in your current home or another living arrangement.

What Is a Retirement Community?

When digging into costs for different senior living options, it’s essential to understand the difference between a retirement community and an assisted living facility or a nursing home.

Retirement communities, also called “senior living communities” or “independent living communities,” are designed for people in their mid-50s and beyond who are desirous and capable of living independently and don’t require specialized medical care. These communities can offer different types of housing, including single-family homes, duplexes, condos, and apartments.

In terms of amenities, retirement communities can provide things such as:

  • On-site gyms and fitness centers
  • Cleaning and laundry services
  • Transportation services
  • Golf course or swimming pool access
  • Community recreational events
  • On-site dining

Assisted living facilities and nursing homes, on the other hand, are for seniors who need some level of help managing daily life. That can range from assistance with basic chores, such as laundry or cleaning, to round-the-clock medical care.

A third type of community, called continuing care, offers a full range of services from independent living through assisted living, memory care and nursing home care. This allows residents to age in place regardless of their health needs going forward and can also accommodate couples in which one partner needs a higher level of care than the other.

Senior cohousing is another retirement living option that combines private living space with shared spaces for dining and recreation. These communities are designed to encourage social interaction among older residents.

Comparing Costs of Retirement Community Living

There’s no set rule for how much you might pay to live in a retirement community. The cost can depend on a number of factors, including:

  • Which amenities are included
  • The type of housing being provided
  • Where the retirement community is located geographically
  • Whether you’re required to pay entrance fees, monthly fees, or both
  • What those fees cover, in terms of housing, utilities, and other services

Generally, the more amenities and services offered, the more you may expect to pay for retirement living in a senior community. Living in a highly desirable area where senior housing options are limited could also push up the final price tag.

Retirement Community Entrance Fees

Some retirement communities require new residents to pay an entrance fee to move in. They’re typically used to help pay for the services and amenities the retirement community provides, which can include medical care.

Entrance fees are often associated with continuing care retirement communities, which provide a spectrum of care to residents as they age. For example, you may start off in the independent living segment of the community, then as you grow older transition to assisted living and, finally, nursing home care. Depending on what’s covered, the fee can range from $100,000 to $1 million.

This type of retirement community may be appealing if you want reassurance that your care needs will be met as you grow older and want to stay in one place. You may still have to pay a monthly fee, however, so this kind of independent living option could require a larger financial commitment than another type of retirement community.

Entrance fees may or may not be fully or partially refundable, depending on the terms of your contract. It’s important to read the fine print to know when you can or can’t get your entrance fee returned to you.

Retirement Community Monthly Fees

While you may not pay an entrance fee to live in a retirement community, there’s still a monthly fee to contend with. According to the senior living referral service A Place for Mom’s National Senior Living Cost Index, the median monthly cost of independent living was $2,522 in 2018, the most recent year for which numbers were available. That’s just over $30,000 a year. Still, it’s possible that you could pay more or less, depending on the community in which you choose to live.

If you’re moving to a retirement community at age 55, the minimum age to join most senior living communities, you’d have to consider how the monthly fee fits into your budget. While you could begin taking Social Security benefits at age 62, that would still leave you with a seven-year gap to fill. And you also have to be mindful of taking money from a 401(k) or an individual retirement account (IRA) prior to age 59½, as that can trigger tax penalties.

In that scenario you may have to pull money from savings accounts, certificates of deposit (CDs), or a taxable brokerage account to cover the cost if you’re not working part or full time. Taking money from a taxable account can affect your tax liability, so you may want to talk to a tax pro about the implications of using that money to pay for retirement community living.

You could use the proceeds from the sale of your current home to pay for a move to a retirement community. If you meet ownership and use tests, the Internal Revenue Service (IRS) allows you to exclude up to $250,000 in capital gains from a home sale on your taxes if you file single or up to $500,000 if you’re married and file a joint return.

Living in a Senior Community vs. Aging in Place

If you’re on the fence about the costs of moving to an independent living community, it can be helpful to compare it to what you’re spending where you live now. For example, here’s how a sampling of average annual spending breaks down for people aged 55 to 64, according to the U.S. Bureau of Labor Statistics for 2020:

  • $21,379 for housing
  • $7,292 for food
  • $4,508 for utilities
  • $1,262 for household operations
  • $1,003 for housekeeping supplies
  • $2,244 for household furnishings
  • $10,287 for transportation
  • $5,684 for healthcare
  • $3,521 for entertainment

Altogether, it adds up to $57,180 for the year. If you could move to a retirement community and pay the monthly median fee of $2,522 for housing, utilities, food, transportation, and healthcare, then you’d come out ahead by nearly $30,000. Again, you have to look closely at what you’re getting in exchange for what you’re paying.

As you compare retirement communities, ask detailed questions. For example, what amenities are included? Does housing include all of your utilities? What level of healthcare is provided? Are meals, housekeeping, and laundry service paid for as part of the monthly fee? Then compare all this to your current budget and what you think you might spend going forward. For example, what if you needed a housekeeper every week or multiple times a week if taking care of your home became more difficult? The more you dig into the numbers, the easier it may be to decide whether a retirement community makes financial sense.

The Bottom Line

Retirement communities can offer numerous advantages if you’re looking to make a move in your later years. Getting to know the costs involved and comparing those costs across different senior living community options can help you find the one that offers the best combination of price and lifestyle for your retirement budget.

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