Our Views

Do you have a financial plan to fund your elder care needs?

Last week, the Globe & Mail published an enlightening yet cautionary piece by Gail Johnson on the importance of planning for health care in your later years, financially and logistically. Newport’s Chief Wealth Management Officer, David Lloyd, was interviewed for the article as the topic is a key part of the holistic wealth management we provide. David’s commentary – and our approach – is based on a five-point financial plan that integrates the hard numbers with softer topics such as personal wishes and communication among family members.

Since the subject is topical for many clients entering this stage of life, either themselves or in dealing with elderly parents, we have outlined the five points of the plan in greater detail below.

Get a financial projection
The primary financial objective of any retiree is to be able to fund lifestyle and health care needs through end of life and not have to worry about the possibility of running out of capital. (The Globe & Mail article gave reference to the types of elder care costs high-net-worth families may be faced with.) Most also want to leave a legacy for family members and other people/organizations that are meaningful to them, but we will leave that aside for the moment since it is ancillary to the topic.

Is your (or your parents’) financial plan up-to-date and are you comfortable that the assumptions and projections are adequate to fund increased health care needs through end of life? If there is any doubt, it is time for a review. Standard retirement models make assumptions for average portfolio returns, spending, inflation, time horizon, sale of assets, such as personal real estate or business interests, etc. and tax efficiency.

Reduce volatility through proper diversification of investments
However, average return assumptions are not wholly sufficient for measuring wealth creation or preservation. Volatility of returns can wreak havoc – especially given retired seniors don’t have the ability to replenish capital and have fewer years for the average return to play out. The higher the volatility of returns, the less likely any single result will be equal to the expected outcome of the financial plan.

We try to reduce the range of outcomes to ensure our clients have the capital to fund health care and other expenses in their advancing years. How? Through true investment diversification across more public and private asset classes and active management by specialists in those asset classes, reducing volatility while improving returns.

Simplify and organize finances
High-net-worth individuals often have complex financial structures – some of which become less necessary as we age. This is another area for review to determine if there are opportunities to reduce the burden of administration as you age and for executors and heirs of the estate. Can debt be eliminated? Investments consolidated? The number of bank accounts reduced?

Ensure the estate plan is current and reflects your (your parents’) wishes for trustees, legacies, residual beneficiaries, etc. Consider joint accounts and secondary wills for corporate-owned assets to minimize estate administration costs. If there are business interests, is an estate freeze an option? Have shareholder agreements been reviewed and are they clear? Is there a plan for the sale or gift of recreational assets and has this been discussed?

As part of this review process, consider liquidity. Cash requirements may change quickly as health care funding needs can arise at any time. Ensure you (your parents) have access to sufficient liquid assets to fund health care or assisted living costs as part of the financial plan. Liquidity to fund accrued tax liabilities triggered on death should also be analyzed.

Look ahead to years of declining health
There will likely come a time when you (your parents) will need some element of assisted living due to physical or mental impairment, so moving from the family home to a retirement home should be considered as part of the financial plan. Selling the family home would provide liquidity to fund additional health care and assisted living costs.

This, of course, is sometimes easier said than done as there are many emotional factors that come into play. Planning and communicating openly (see point 5) rather than waiting until there is a crisis will help to facilitate a smooth transition. Some families also seek the involvement of a social worker or other trusted professional experienced in geriatric care. There is an increasing number of health services companies that provide support services for families grappling with these issues – though they must be paid for privately.

Another important consideration: is there a Power of Attorney for property to ensure ongoing care is paid for? Consider a Power of Attorney for personal care to provide guidance to family members on end of life medical care. It is important that the individuals undertaking these responsibilities are aligned in terms of what the priorities are. We have seen situations where the Power of Attorney for property has the goal of preserving the estate while the Power of Attorney for personal care seeks the best care possible. This can lead to conflict and compromised decision making – as well as fractured relationships.

Aging with grace can be a challenge. It is a difficult time of life. But it is made more difficult in the absence of planning and communication. The best time to plan for and discuss health care scenarios is when everyone is still healthy – in mind, body and spirit. And while it is true these aren’t easy or comfortable topics of conversation, it is better to talk about them now than before it’s too late. There are also tools and professionals to help you facilitate these talks.

We encourage you to talk to your family members about your wishes and expectations around health care, end of life and funeral matters, personal assets, collectibles, etc. And if you have elderly parents who haven’t raised these matters with you, perhaps it’s time to initiate a conversation. To help prompt this, we attach an earlier blog post on how to talk to aging parents about their financial affairs.

We hope both posts may be helpful resources. Please feel free to get in touch if you’d like to discuss this further.