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retirement finances

Lou Marzola, 67, makes coffee for Maria Marzola, 93. His mother’s health has put Mr. Marzola’s careful financial planning under duress.Chris Young/The Globe and Mail

If mom or dad ever held your hand when things got scary, rest assured that you can return the favour when it's time for your parents to face the often daunting ordeal of retirement planning.

An adult child can help guide parents through the retirement planning process or manage the eventual execution of a plan if a parent's health declines or he or she becomes incapacitated. But unfortunately, no amount of planning can foresee what life can throw at you.

Lou Marzola's efforts to care for his 93-year-old mother, Maria, is a case study in how financial planning can be derailed by trends in longevity. Mr. Marzola is a semi-retired controller in the Greater Toronto Area, with health problems and, at 67, he should be focused on his own golden years. Instead, most of his attention and time has gone into managing his mother's situation.

When Mr. Marzola's mother retired about 25 years ago, he dutifully managed her retirement finances, which amounted to a small pension and RRSPs. Today, while continuing to live in her own home, his mother is suffering from dementia, Alzheimer's disease and has mobility problems requiring the attention of a live-in caregiver. For the past three years, Mr. Marzola has spent every other weekend looking after her, alternating with his sister. Their mother has been on a waiting list for a spot in a provincial managed-care facility for three years.

His mother's health has put Mr. Marzola's careful financial planning under duress. His mother's registered retirement income fund (RRIF) and that of her husband, who predeceased her, have been depleted. A family cottage was sold in 2005 and the proceeds were invested in a diversified portfolio of mutual funds, index funds and GICs. Her pension brings in about $24,000 a year but the cost of her care amounts to about $40,000. Mr. Marzola calculates he has drawn $50,000 over three years from the proceeds of the cottage sale but, at this rate, these funds will soon disappear as well. Eventually, when she moves into a nursing home, Mr. Marzola can sell or rent her house to provide funds for her continuing care.

"I did everything for her that needed to be done. She's Italian – she doesn't speak English very well – so she's kind of lost in the system. I'm still doing everything – payroll, workman's comp for the caregiver, I handle all her money," Mr. Marzola said.

"Luckily we were able to put some money away or else we would be in dire straits."

What can't be calculated on a spreadsheet is the stress on the family. Mr. Marzola and his sister don't always see eye-to-eye on the amount of time each contributes to caring for their mother.

"I ran into a bit of problem with my sister when it was time to fill out the papers for a nursing home. She kind of balked at that. But she eventually came around. We have our little arguments once in a while," Mr. Marzola said.

He hopes his mother lives to 100, but he says the caregiving that often keeps him up at night is taking its toll on his health.

Jason Heath, a fee-only planner with Objective Financial Partners Inc. in Markham, said the Marzolas' situation will become more common in the future as people live longer and outlive their savings. As well, more people will have to use their own resources to care for family members as this population segment outstrips the capacity of the health-care system to provide for them.

There's no quick fix to the Marzola family's current situation, but Mr. Heath says one of the strategies that could have alleviated it is long-term care insurance. There are a variety of long-term care options, but basically premiums are paid if the policy-holder needs constant professional care to perform daily activities such as eating, dressing, bathing and moving around a home.

The best time to buy is when people are in their 50s and are nearing retirement, Mr. Heath said. But the usefulness of long-term care insurance is tough to measure within an individual's long-term financial plan, simply because people would be reluctant to pay fees for more than 30 years toward a service they may never use, he said.

Few people sign up for such policies, but Mr. Heath expects this to change.

"We're at the early stages of long-term care shortages. … Ten years from now this will scare people into considering buying long-term care insurance."

Further, Mr. Heath said Mr. Marzola shouldn't consider renting his mother's home when she eventually moves. The rental market is weak right now and he believes that this financial plan needs more simplification. Being a landlord, with all of its complications, would not help Mr. Marzola's stress level.

Generally, Mr. Heath said when retirement age nears, it's best to get the whole family involved early in the process to allow difficult issues and all the possible future scenarios to be discussed openly. This makes children aware of future responsibilities and hopefully avoids confrontations among siblings. Children can also help parents avoid financial fraud and scams.

"In particular, with elderly parents I find you end up finding a balance with what's the right thing to do financially, with the right thing morally and what's the right thing to do from a lifestyle perspective," Mr. Heath said.

Having adult children participate in their parents' retirement planning can create problems if the generations are not on the same page. Parents may find it awkward to reveal the details of their finances – especially if they have not made smart decisions in the past. Siblings may not agree on the financial plan, the kind of services needed or how to deal with family-owned assets. There may also be a wide knowledge gap among family members when it comes to finances.

As for Mr. Marzola's own retirement plan, he has no complaints. Because he has never had a pension, he regularly contributed to his own retirement savings and has documented his retirement plans and shared them with his children.

"I'm financially secure until I'm 92. After that I don't know what'll happen. I guess my kids will have to take care of me."