Retirement is the beginning of a new and exciting phase in our lives. Since this is a time of great change, it can be challenging at the outset to estimate our spending needs. In the past, retirement was a 10-20 year period. Times have changed, and with longer life expectancy, retirement can last for up to 30-40 years. Since defined benefit pensions are less common and less generous, the onus lies with us to ensure that we have accumulated enough money to sustain the lifestyle we desire in retirement.
Don't forget the medical expenses
When calculating retirement expenses, an area that is often overlooked is the need to pay for future medical expenses. While we have a great healthcare system in Canada, it has its limitations. There are subsidies available for elder care, including home care and long term care, but they are limited.
Debbie Gilbert is a Certified Professional Consultant on Aging at Generations. She recognized a need for professional third party assistance for families when her mother required long term care. She facilitates care conversations between families, professionals, and organizations to assist in the development and implementation of care plans as part of her private practice.
Gilbert says that “the majority of Canadians remain at home when they need care. It’s important to note that the amount of care they will receive (from the government) will likely be way less than they think they are going to receive.”
What that means is that if someone has lost the ability to care for themselves through the inability to perform some or all activities of daily living (bathing, eating, toileting, dressing, transferring and incontinence) or they suffer from dementia, the amount of “care hours” provided through subsidy will be very limited. Significant family support will be required in order to take care of the ailing family member.
Many families don’t have the resources to provide this help consistently, so they “top up” the hours provided through government subsidy by hiring assistance. According to Gilbert, help can be found either privately or through an agency, and on average, the costs range from $15-$25 per hour of care.
Let’s look at an example. John had a stroke last year that has left him partially paralyzed and unable to leave his bed. He receives 4 hours of daily care provided by government services. In order to adequately care for John, the family has hired someone to come in for an additional 5 hours per day. At $20 per hour, the cost is over $36,000 annually. In cases where 24-hour care is required, the costs can become extremely prohibitive.
Retirement homes and long term care
When home care is no longer sufficient, the next step would be a retirement home or long term care facility. Once again, there are long term care beds that are subsidized by the government.
Depending on where you are in Canada, the average waiting period to get into a home or facility is 3-5 years. There are homes that have short waiting lists, but they may not be in your area, or may not be what you want. It is of critical importance to thoroughly investigate the different options available. “Wait times are not always an indication of whether it is a good home,” says Gilbert .
The cost of a subsidized spot in a long term care facility in Ontario is approximately $1,800 to $2,500 per month. You must apply, and qualification criteria must be met.
Retirement homes are another option and they offer varying levels of service. Across Canada, the average starting price for one person is between $4,000-$5,000 dollars per month. That covers the basics. Additional services are a la carte, and can add up very quickly. It's not uncommon for people to be paying $8,000-$10,000 per month.
“Boomers are the largest demographic wave coming. 57% of people living in long term care homes have Alzheimer’s disease or other dementia. The average life expectancy for Alzheimer’s Disease is 8 years after diagnosis,” says Gilbert. Family assets are often depleted in situations such as these, and the adult children are stepping in to cover the costs. This often means further debt being accumulated by the next generation, as costs for care continue to climb.
Retirement planning is more than withdrawal rates and vacations
So how can we plan for this? When planning for our retirement, it is prudent to consider the risk that our expenses will rise in the future if we require care. This may require building a buffer into our expenses to mitigate those costs. In some situations, people will enter into a reverse mortgage or sell their home to cover the costs. It’s important to inform our family of our wishes.
Additionally, there is long term care insurance available as an option. Long term care insurance pays a weekly or monthly benefit should you lose the ability to perform two activities of daily living or suffer cognitive impairment. You can apply for this through your insurance agent, and it must be medically underwritten and approved by the insurance carrier.
Most importantly, open communication within the family is key. This is not an easy topic to discuss, but it is critical that the entire family determines how the situation (if it presents itself) will be handled, and how expenses will be managed. It is a very big responsibility for our children to carry, so we want to ensure that open discussions lead to a viable plan, should this become a reality in our lives. A solid plan will lead to peace of mind, and create a much easier transition for our family, should the need for care arise.