You Can Afford Retirement But Can You Afford Retirement Care?

Aug 5

Many Canadians are reasonably well set for retirement, financially speaking, thanks to personal investments and social security provided by the Canada Pension Plan (CPP) and Old Age Security (OAS). However, many Canadians avoid thinking about some worst-case scenarios – that they may end up requiring long-term care or may suffer from Alzheimer’s Disease or otherwise require extended care. No one likes to think this will happen to them or their parents but these kinds of things happen everyday.

Two case studies of families caught up in the need for senior care show how worst case scenarios can play out. In those stories, told here, one turns out better than the other.

The need for long term care insurance

Jim Ames and his daughter Margaret thought he was set for retirement. Had he looked at it several years before his early retirement, Jim might have realized that he was set to receive income of about $30,000 per year. With no mortgage to pay and no dependents he might have been able to live reasonably comfortably on this income, pulled together from a work pension, along with CPP and OAS.

However, sadly, he had not really accounted for the eventuality that he might some day require assisted living services in one of Ontario’s retirement homes. Coupled with the fact that he had to quit work at the age of 58 and begin drawing his pension early, Jim and Margaret faced an annual shortfall of over $12,000.

There are a number of ways that they could have been “luckier,” of course. One way is that Jim might have purchased long term care insurance. The insurance premiums over 30 years of working would have cost Jim less than one year’s shortfall that his family currently faces. Across Canada, there are more cautionary tales like that of the Ames’.

None of us likes to think that the worst can happen but it is always best to plan for the worst, even as we hope for the best.

On the other hand, not all stories end in financial strife.

Benefits of financial planning

Helene is a Hull, Quebec senior who, regrettably, has been stricken with Alzheimer’s disease. Helene’s son and daughter-in-law took on care giving for a while but they eventually admitted that Helene required more care than they could give. When they opted to put her in a retirement home with Alzheimer’s support, they needed one they could afford, also, of course.

They found a home near their city that offered Alzheimer’s care, at a cost of $6000 per month for full service. Had they been short of available funds, this would have only compounded the difficult times they were facing. Helene had a pension from her career as a federal employee, along with CPP and OAS but this was still not quite enough. However, Helene had accumulated $80,000 in a Registered Retirement Savings Plan (RRSP); by converting this into a Registered Retirement Income Fund (RRIF) her children could cover the monthly shortfall they would have faced.

While she continues to degenerate, their sadness for Helene isn’t compounded by financial stress. As long as her RRIF capital earns at least five percent per year, her income will last long enough to cover her through five years, more time than doctors have given her. While the story of her failing health is indeed sad, the family has more than enough to cover care costs as Helene nears the end of her life.

While we all hope for the best in retirement it is a simple fact that a percentage of us will be unpleasantly surprised at our state of affairs in retirement. Buying long-term care insurance and using sound financial advice on savings and funds are two ways that we can ensure our security in retirement.

On the other hand, the worst thing that can happen to you if you over-prepare is that you might end up with too much money or too much security. In some cases, people are pleasantly surprised to find that they can afford to retire more luxuriously than they might have thought possible.

Business Generation