Wow. This brings to mind about a little over one year ago when my 19 year old cat, Prissy, started wasting away and not being able to control her bladder. I tried everything - thyroid pills, new food, etc., but I could tell she was not going to last much longer. One morning when I had to leave on business for a week, Prissy seemed to be starting to suffer, whereas she had acted somewhat normally before. I knew she wouldn't last the week and I didn't want to leave my husband and son (who was four) with a tragedy while I was gone, so I took her to an emergency vet and had her put to sleep - a very difficult thing for me, as my sweet girl had been with me through so much. When I came home, I pulled myself together as much as I could. My son asked where Prissy was. I told him that she had to stay at the doctor for awhile because she was sick.
One week later I returned, and everything went back to normal, but without Prissycat. I just assumed my son had forgotten about her. Wrong.
This was not the case. My son surprised me one morning two weeks later when I was getting ready to go to work and asked me when Prissy was coming home from the doctor. I stood there, shocked, but ended up telling him the truth (mostly) - that Prissy didn't make it and had died, but was no longer in any pain. He started crying, I started crying and I hugged him tightly.
Unfortunately, for several weeks later, he would be terrified if my husband or I had to go to the doctor because he thought we would die and needed a lot of reassurance. He would also break down in tears and say how much he missed Prissy. It was heartbreaking.
I feel I should have told him about it before he brought it up. I think this would have been better, and I have learned from it. It sounds as if you have, too. Tell him the truth (or a version where he died at the retirement home). He will need some closure. He will always remember his friend, but after a couple of months, maybe you can pick out a new friend together.
About six months later, we went to a Humane Society event and adopted a beautiful black kitten, whom my son named Suzy. They are the best of friends, and Suzy is very tolerant and loving. While my son hasn't forgotten Prissy, time and new experiences do seem to help a great deal.
Good luck.