Retirement planning is about more than saving enough money to relax, golf and get to the bottom of your bucket list.
That, Trent Hamans argues, is only one phase of retirement. It’s prudent to prepare for the one that might involve longer-term health needs, says Mr. Hamans, managing director of wealth transfer at ATB Wealth in Edmonton.
“Many people view retirement only as travel or experiences with family that perhaps they missed out on. But retirement is likely going to have a number of different stages,” Mr. Hamans says. “In the later years, retirement can often require a bit more help as our health tends to decline.”
That is why Mr. Hamans recommends that conversations around long-term care take place alongside those focused on retirement and estate planning.
“You basically need to have two buckets: one for the goal-planning and one for the unexpected,” he says.
It’s important to look ahead. While we can’t predict the future, we can plan for the likelihood that, if we live long enough, we’ll face health challenges.
“People usually don’t lose the ability to live independently suddenly. It’s usually a progression, which means your care needs are likely going to accelerate over time,” Mr. Hamans says.
“In an ideal world, that conversation happens over a period of time, much like estate planning,” he continues. “The best estate plans are the ones where there has been a rich dialogue between mom, dad and the kids. There should be a similar dialogue about what long-term care might look like, if it ever applies to them.”
COVID spurs discussions
The COVID pandemic has highlighted the uncertainties of life, and also the realities of long-term care. That’s prompting some family discussions, says Mr. Hamans.
“There has certainly been an increased awareness, and I think people are being very reflective about their options given the recent profile of several long-term care facilities,” he says.
Costs and services vary. So planning for care depends in part on understanding the options and what you want, e.g. communal housing, independent living, public vs. private, etc.
What kind of care will be needed, and where and how it will be accessed, can be difficult to forecast. Sometimes there are clues that can assist with planning, says Mr. Hamans.
For instance, is there a family history of illness, or of longevity, that may result in a higher probability of long-term care needs? Financing long-term care also relates to an individual’s current and future financial situation.
Some people might be planning an active lifestyle that will take them travelling, or involve other experiences that results in a cash burn. Will that cash burn fade a few years into retirement? Will they have a soft retirement where some work income covers day-to-day expenses, allowing the retirement nest egg to grow a little longer?
Depending on savings and investments, funding long-term care might necessitate alternative strategies.
“A reverse mortgage may have appeal where there is significant equity in the home, and the desire is to receive care within the home,” Mr. Hamans says.
Some insurance products can also help with the burden of long-term care, but that requires advanced planning, often years prior to the need.
Planning for possible long-term care requirements can be more complicated than typical retirement and estate planning. For instance, what if one spouse needs support in long-term care, while the other spouse can still remain in the family home? Will home expenses need to be maintained along with long-term care costs?
“What sometimes happens is there ends up being two plans,” says Mr. Hamans.
A conversation about loss
Long-term care planning can be a difficult subject to broach. Mr. Hamans says one way to make the conversation a little easier is to frame the subject in terms of loss rather than change.
Viewing a move into long-term care as a “change” might seem like the more optimistic perspective. However, Mr. Hamans says it can also come across as dismissive. Change can be seen as something that’s being dictated. Whereas loss is more a matter of circumstance, with no one to blame.
“The thing that’s challenging is that sometimes it is characterized that mom or dad need to change. While I agree to some degree, it is also about losing independence,” says Mr. Hamans. “If you view the conversation as being about mourning that loss and adapting to it, rather than change, it tends to result in a different type of conversation. I think people will be more open.”
The uncertainty around long-term care underscores the need to imagine a “worst-case scenario”, he says, then plan backwards from there.
“The most important thing to do is include continuing care in your financial planning,” says Mr. Hamans. “The key is having a robust plan about what retirement is going to look like from beginning to end, and what do you need for each stage.”
Visit ATB.com to learn more about continuing care and long-term care options in Alberta, and how you can plan for and finance them.