A client recently asked us if she would be able to afford a retirement “home”, or if necessary in her later years, “long term care”. “I don’t want to be a burden on my children” is a phrase that we are hearing more frequently as our clients and the Canadian population in general, age. Today, Canadians 65 and over represent more than 13% of our total population. In the years ahead this percentage will become significantly higher as the Baby Boomers age.

For our 85-year-old client, selling the family home after 40+ years and moving to a retirement home or “residence”, as they are now referred to, was both an emotional and financial decision. Which residence would be best for her? Should she move closer to one of her children or stay in the same neighbourhood? What will it cost? What if she needs long term care in the future? Does the retirement residence offer long term care, or will she have to move again if her health fails? “Can I afford it?”

These are all typical questions that require individual solutions based on the unique needs of each client. From a financial perspective we can be of great help to you or your parents if facing a lifestyle decision of this nature. We can develop a cash flow model to illustrate the after-tax income available to you, as well as continue to manage your investments to meet your changing income and capital requirements. Giving you or your parents the confidence that you can make the transition is, in itself, perhaps the most important result.

In our client’s situation she had a survivor’s pension from her late husband’s employer, OAS/CPP benefits, and a modest investment portfolio. She researched privately-operated retirement residences and found that they typically cost $3,000-4,000 monthly in the GTA, and that it’s not unusual to see high-end alternatives in the $6,000-8,000 range. While on the surface it initially appeared to our client that she may have some cash flow issues, we were able to assure her that by conservatively investing the additional capital available from the proceeds from the sale of her home, she could move into the retirement residence that was her first choice.

Moving to a retirement residence becomes more costly if there is a current or potential need for long term care. Not only is this something that we had to take into account in our planning assumptions for our widowed client, but it’s also particularly problematic in the case of a married couple where one spouse is still able to live in the family home and the other spouse needs long term care. In this scenario expenses can increase dramatically, with the usual expense of operating the family home augmented by the cost of long term care, whether it is home or facility care.

It’s not difficult to spend $3,000 monthly or more for private duty nursing at home. Government-subsidized long term care facilities range from roughly $1,900 to $2,200 monthly for semi-private or private accommodation without private duty nursing, and privately-owned facilities can easily reach $5,000-7,000 monthly depending on the services offered and the level of care needed.

In our example, our widowed client was able to self-fund the cost of the retirement residence through her pension and investment income and the sale of her home. For those of you also facing the potential of home or facility long term care there may be other sources of income that we have to take into consideration. This may include alternatives ranging from selling a second residence such as a vacation home, assistance from family members, and/or borrowing against the equity in your home (line of credit or reverse mortgage). All of these choices involve some costs and trade-offs.

If you’re younger, say in your 50s, you have an advantage in that you can avoid these difficult decisions down the road by acquiring “long term care insurance” (LTC) before the cost of obtaining it becomes too onerous or it’s simply not available because of declining health. LTC insurance reimburses you for out-of-pocket expenses for home and/ or facility care and is designed to fill the gaps not otherwise covered by private and provincial health insurance. We are finding that this method of funding future care costs is increasingly of interest to our Baby Boomer clients who are awakening to the costly financial issues surrounding their parents and their needs.

Worried about potential long term care costs depleting the value of your estate that your children will ultimately receive? Life insurance is a simple, cost-effective method of offsetting this erosion and preserving your estate. We can assist you by designing solutions using permanent insurance that is generally available, subject to underwriting, up to age 80.

Unfortunately, many Canadians look the other way when it comes to planning for old age and protecting themselves from the expenses of what we might call an “end-of-life” health event. All too often the thinking is, “it won’t happen to me”, or “my kids can look after me”. This often results in a depletion of capital that was earmarked for the family – assets that can have been protected with long term care insurance.

Recognize that making a decision about transitioning to a retirement residence or into long term care can be paralyzing when the time comes if you haven’t thought it through in advance or spoken with your family, your Polson Bourbonniere advisor, and members of the medical community. And, take the view that the best your children can be is care “managers” as opposed to care “givers”. They probably lead busy lives juggling career and family responsibilities and would likely find it impossible to be involved to the fullest extent that they wish possible. Research retirement residence and long term care facilities and their services and costs now while you are able, and contact us to incorporate this into your Worry-Free Retirement Income Plan.