Imagine setting out on your dream retirement, and then a few short years into this new chapter, something happens that derails it all. It could be a Parkinson’s diagnosis, a stroke or another condition that wasn’t in the plan. And that’s the problem – plans are always built around dreams, but not everyone puts as much thought into what they’d do if they’re unable to live out the retirement they envisioned.
Planning for declining health is an issue more Canadians will have to consider as people live longer. In Canada, the average life expectancy is just over 81 years, which is almost a decade longer than the global average, according to the World Health Organization.
Even for a high-net-worth individual, the costs associated with a long-term health issue or disability can come with some serious sticker shock. Paying $250,000 a year for 24 hour a day live-in nursing care is not unheard of, says Sue Noorloos, Director of Estate Planning with BMO Private Wealth. Travelling out of the country to pay for faster access to specialists could also significantly set you back. A knee replacement at a private clinic in the U.S. could cost US$15,000, while bypass surgery can run US$200,000.
As uncomfortable as it is to talk about the good, the bad and the ugly of what aging looks like, medically and financially, you can’t prepare for what you don’t understand. That’s why, no matter how young or old you are, you should take stock of your wishes for medical care and incorporate those costs into your retirement planning.
“This is a conversation that needs to happen in concert with the retirement conversation, which you should be having in your 30s and your 40s,” notes Calvin Greefhorst, Vice President and Regional Director of HNW Wealth Planning with BMO Private Wealth.
The right choices for you
Although there are all kinds of healthcare services you might need as you get older, the biggest decision is likely to be whether you move into a care facility or stay in your own home and age in place for as long as it is safe to do.
“Everyone ages differently,” says Noorloos. “This is one of the key pieces to start with because the cost differential between the two can really vary.”
According to a 2021 report from the National Institute on Ageing, 96% of Canadians over age 65 do not want to move into a long-term care facility as they get older. However, it’s worth noting that luxury care homes, while expensive (some residences cost upwards of $12,000 each month), can be more like a resort than a retirement home, with offerings ranging from an in-house salon and movie theatre to a dining service with restaurant-style menus.
The benefit of an institutional facility is the easy access to nurses and specialized care, especially for those who are managing more complex medical conditions or require memory-related assistance. The predictable monthly expense is also an advantage since it’s easy to plan for.
The cost of aging in place
There’s a general assumption that living out the rest of your days in the comfort of your own home will be less expensive than moving into a nice retirement residence, especially if you’ve paid off your mortgage. Sometimes, though, the physical challenges of aging can come on gradually, then suddenly.
Depending on the layout of your house, the costs of a sudden – but necessary – renovation to make your home more accessible after a stroke can be astronomical. Everything from the number of stairs up to the front door, to the presence of a full bathroom with bathtub or shower on the main floor, to where the electrical outlets are located and whether someone in a wheelchair could reach them.
Many door frames are too narrow for a wheelchair to pass through; not to mention the sheer amount of space required in a bathroom to accommodate one, in addition to needing to adjust the sink height and install safety bars. “It can be really quite complicated,” notes Noorloos. “Often it becomes more straightforward to move to a home that actually has a better blueprint for somebody with a physical disability.”
Building a basic ramp for the front door starts at $500 but can reach $12,000 to $15,000 for a more aesthetically pleasing version made with interlocking brick. Likewise, a renovation to make an existing bathroom barrier-free and wheelchair-friendly could set you back about $15,000.
Making your home accessible is only the start. If aging in place is a priority, then you may have to hire a personal support worker or pay for scheduled visits from a private registered nurse. These types of caregivers generally charge hourly rates between $45 and $85 an hour, depending on their qualifications, and many have a minimum hourly commitment. For someone who needs full-time care, there are labour laws to comply with, so having a live-in caregiver doesn’t mean they’re accessible 24 hours a day.
“There’s also the costs of things associated with having a disability,” Noorloos says, adding that the price tags of medical equipment and other supports that aren’t always covered by insurance can all add up.
Planning for all scenarios
There’s really no way of knowing what the future holds, which Greefhorst points out is stressful in and of itself, but the one thing you can do is be financially prepared for any eventuality.
“Planning in this context gets much more complicated because you don’t know when or if you’ll need it. And when it does happen, you don’t know the amount,” he says. “You want to have built up enough extra money so that when something happens, you can focus your decision on what’s important for you and your family, and not that you can’t afford to do X.”
Long-term care insurance, which provides tax-free payments to help cover the costs of a care home or private in-home care once certain prerequisites are met, is an option, but it can be an expensive premium that may not be guaranteed for life and with no guarantee that it will ever pay out, says Greefhorst. There are, however, tax credits that can be taken at times, which can help with some expenses.
Understanding your cash flow becomes even more important in the face of an unexpected health issue, especially if your wealth is tied up in a business or other illiquid assets like real estate. Of course, options like a home equity line of credit or a reverse mortgage can unlock cash; however, it’s best to speak to your wealth professional to determine what’s right for you.
Beyond these options, both Greefhorst and Noorloos suggest having a conversation with your family to discuss your wishes, and ensure your power of attorney documents also specify your preferences for care.
“I’ve heard many parents say, ‘I don’t want to be a burden on my kids,’ but oftentimes kids want to step up and assume some of the responsibility for the care of the parent,” says Noorloos. “That can really change what everything looks like and what it costs.”
