Retirement can be only as secure as your retirement home

By David S. Hilzenrath
Saturday, October 31, 2009

Is your retirement secure? For some people who thought they had taken care of everything, the answer may be riding on another question: Is your retirement community secure?

Anne Bradt, 83, said she and fellow residents thought they had bought themselves worry-free retirements when they pu t down hundreds of thousands of dollars -- upwards of $900,000 each -- to move into Sherburne Commons in Nantucket, Mass. Then, a year ago, the nonprofit company that runs the place sought bankruptcy protection. Food service was cut to one meal a day. Activities such as dance and music disappeared, along with the activities director and other members of the staff. Residents could still pull a cord if they needed emergency help in the shower, but they would have to pay extra for the lifeline, and the person answering the call would no longer be on the premises.

Bradt's life became caught up in a complex legal proceeding, with her entire deposit at risk.

"It's been one year of absolute hell," Bradt said. "It's taken its toll physically and mentally."

The recession and the real estate crisis have raised new concerns for people who paid hundreds of thousands of dollars, as much money as it might take to buy a home, just to enter retirement communities. The deposits typically earn seniors the privilege of moving in; they do not confer any ownership in the real estate, and they are in addition to monthly fees that can total thousands of dollars.

In theory, residents can reclaim the money when they move out, or their heirs can recoup it when they die. But the model can break down when the communities' economic assumptions prove too optimistic.

The October bankruptcy filing of another firm -- Erickson Retirement Communities, a major developer and manager of campuses for senior citizens -- casts a spotlight on the risks.

Erickson has been a leader in the world of "continuing care retirement communities" -- CCRCs -- which offer independent living, assisted living and nursing home care. In the Washington area, Erickson communities include Riderwood in Silver Spring and Greenspring in Springfield. People move in while they are still able to live independently, hoping it will be their last major move. One of the main advantages is that seniors can stay in the same community as their health deteriorates, and couples can avoid being separated in their declining years.

For some Erickson residents, including early occupants of the Ashby Ponds development in Ashburn, it may not work out that way. The weak economy prompted Erickson to halt development of several projects before completing the assisted-living or nursing facilities.

Erickson spokesman Mel Tansill wrote that the company's problems "have no direct effect on . . . each resident's right to a refund." Nonetheless, the company's decline has helped illuminate pitfalls that were inherent in its approach.

Erickson promotes its deposits as "100% Refundable," with an asterisk that points to the fine print. Sure enough, there's a catch:

Residents are not entitled to get their money back until management lines up a new tenant for the apartment and the new tenant posts a deposit.

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