Widespread fear of the cost of long-term care is not grounded in reality.
You don’t have to worry about being able to afford long-term care in old age. Odds are good you won’t need it
Saving for the final moments of your life? Is that what financial planning should be all about? There’s always going to be a debate over how much you should save for retirement. Much of the argument, however, seems focused on our fear of being forced into living in a government-run nursing home as opposed to being able to afford the necessary care to die gracefully at home. It’s a decision muddied by thoughts that government programs that are available today may not be around tomorrow.
Those fears don’t reflect reality, says Fred Vettese, chief actuary of Morneau Shepell. “We seem more afraid of longterm care than we are of death,” writes Mr. Vettese, in a soon-to-be published book called The Real Retirement. “This fear is not even based on statistics — it’s more visceral than that.”
He points out that while retirement homes are paid for privately, only 3% of the 1.5 million seniors in Ontario live in one. Even once you need to go a nursing home, which usually means 24-hour care, preferred accommodation can be found for about $2,000 per month with income from OAS, CPP and anything left in your RRIF covering that.
“There is no fear anyone will be removed from a nursing home due to limited financial circumstances,” Mr. Vettese says.
Don’t tell that to detractors of the system worried about wait times and what government won’t cover. If you want to stay at home, you’re going to pay for items like full-time supervision. In a nursing home, anything more than a minimal room will require you to chip in.
But the actuary says he has crunched the numbers, and it comes down to a one in 16 chance, or 6.25%, that you will end up in an assisted-living situation.
But it’s that risk some people want to lock down. One financial planner calls it “wealth versus health,” with some people opting to put money aside today and sacrifice lifestyle now because of that small risk. They can do it in savings or increasingly in premiums to long-term care plans that have long been popular in the United States and have made their way to Canada.
Mr. Vettese says only onethird of seniors over 85 years old end up in nursing homes. And since there is only a 50/50 chance someone 65 will make it to 85, the chance of ending up in a nursing home falls to one in six. He further reduces that percentage for 24-hour care. In Ontario, only 3% of seniors reside in that type of retirement setting. The percentage would probably be higher — Mr. Vettese says 6% — but some people avoid that type of setting due to cost or preference, which brings you to his one-in-16 calculation. How do you deal with that risk? You could start by doing absolutely nothing.
“It may seem irresponsible,” Mr. Vettese says, adding you can probably pay for the extra care you might need with your retirement income, which you will have little use for once you are under 24-hour care. Some people may also have a home to sell.
A key to this scenario is the fact that you may be left with no money when you do actually die and the actuary has a clear message to potential heirs. “No one said you need to leave a large estate to your children,” Mr. Vettese says. “Too many people over-save. They are not going to live forever. The real tragedy is over-saving at 55 preparing for this eventuality.”
He maintains the idea the state won’t provide for long-term care one day doesn’t wash. He estimates by 2031, long-term care residences will need to provide for 518,000 residents or 20% of the population of 80-year-olds. When you look at those over 85 years old, he says about 35% find themselves in a long-term care residence, a sustainable cost as a “portion of the country’s health-care bill.”
But Mark Halpern, of illnessprotection.com, said there is a concern the government won’t provide.
“They are worried about wait times,” he says of the population buying long-term care insurance which they can either use for home-care or better accommodation in a nursing home.
“The government is not going to be able to care for everybody. We know that. Everything is being pulled back.” He just sold a policy to lawyer who is paying $8,900 a year for a benefit of $9,000 a month tax-free if he ever needs home care.
“He doesn’t like the idea of ever being in a nursing home,” Mr. Halpern says.
The best option is probably to be really rich so none of this means anything to you because you’ll have more than enough left in your estate even with 24-hour care in your home. The middle ground might be a long-term care insurance policy. Benefits can range from $20 to $300 per day and policyholders usually have to show they cannot perform two or more of six specified daily activities before they qualify.
Going the long-term care route is going to cost you. Mr. Vettese estimates premiums are, on average, $200 per month for a 55-year-old and $300 for a 65-year-old to cover those future benefits.
Anthony Windeyer, a certified financial planner with Coast Capital Insurance Services Ltd., says it’s ultimately up to the client to decide how they want to deal with risk.
“For somebody with tremendous means, it just doesn’t matter,” Mr. Windeyer says, adding the same holds true for people at the bottom of the income scale. “Someone in the middle, this is where the discussion takes place where there is the potential to trade wealth for health. You can retain that risk [that you’ll need support] and potentially spend all of your nest egg on long-term care costs.”
He says the issue for his clients is whether they are going to want to live at home with care near the end.
“I remember there was this advertising campaign in the States, ‘ Long-term care, you can’t stay home without it,’ ” Mr. Windeyer says.
The key thing to remember when considering coverage is whether you are buying a policy that covers you for care in a facility or in your home.
The other alternative is Mr. Vettese’s do-nothing scenario. It’s a small risk by his calculations, but is it one you want to take? Maybe it depends on how much faith you have in the government to continue to provide fully funded services.
Too many people over-save. They are not going to live forever