RBC's retirement strategy expert looks at the costs and considerations in the fourth installment of WP's long-term care series
When advisors are helping clients plan for their long-term care future, they may also need to help them consider how to support family members as they reach their vulnerable age. That need has been growing for a while, but it became even more apparent during the pandemic.
Rick Lowes, RBC’s Vice-president of Retirement Strategy, told Wealth Professional that Canada has about 8 million care givers providing support for around 3 million care receivers. These caregivers spend about $7 – $8 billion a year out of their own pockets, and the AARP study in the U.S. spelled out more of what those costs can entail.
When AARP, an American non-profit organization that tries to empower people to choose how they live as they age, released its 2021 Caregiving Out-of-pocket Costs Study in June, it noted that family caregivers in the U.S. were providing $470 billion in unpaid care. 78% of family caregivers were incurring out-of-pocket caregiving costs and 26% of family caregivers were spending, on average, a quarter of their income on caregiving costs.
The study noted that household expense, including paying rent or mortgage payments or making home modifications, comprised the biggest share (41%) of family caregivers’ expenses. Medical expenses, including in-facility care and insurance costs, accounted for the next biggest share (25%). Long-distance caregivers – those who lived more than an hour from their loved one – incurred the highest out-of-pocket costs ($11,923), while those who cared for an adult with dementia reported nearly twice the out-of-pocket costs ($10,697) of those caring for someone who did not have dementia ($5,758).
On average, the AARP said families spent $7,242 a year to provide care – but the amount and financial strain varied by cultural group. African Americans spent an average of $6,746 (34% of their average income). Latinos spent $7,167 (47% of their average income). Asian Americans spent $8,368 (22% of their average income).
“The study showed that a significant portion of the costs tended to come from helping people with professional caregiving and long-term living costs, but there’s everything in between in terms of supporting those daily costs, like prescriptions or picking up groceries on their behalf,” said Lowes. “Those costs tend to typically be carried by a primary caregiver, the individual closest, both emotionally and physically, to that person.”
RBC recognized the burden that is often placed on one family member and introduced a care coordination phone application that allows that member to share the caregiving tasks by assigning them to other family members, so they can help with driving to appointments or grocery runs. It also allows them to upload, and share, expenses, said Lowes, “so that burden isn’t carried by just by that one primary caregiver.”
“This is, without a doubt, a very challenging generation that we find ourselves in,” said Lowes, “and I think that will continue in the future where people with aging parents may also be helping to support grown children.
“I think it’s important, from an advisors’ perspective, to help people through this type of planning exercise to understand exactly what you need and what you can access to support your loved ones through the life stages.”
Lowes noted that half the people RBC recently surveyed still had not developed that financial plan, which is so critical for later life. He urged advisors to help them do it so they could determine how much money they’ll need for an emergency fund as well as end-of-life care. That’s particularly key since health issues can crop up and cognitive decline begins to appear by age 75 or 80, requiring aging Canadians to need additional support from family members or professional caregivers, which can extract a financial toll on those providing it.
“It begins with things as simple as just helping them do daily living activities, such as purchasing things on their behalf and helping them shop,” said Lowes. “But, then, it starts to move into helping them manage their finances and making sure they’re keeping on top of all their bills and expenses, and managing their investments for them to ensure they’re well maintained for the duration of their life. Then, it starts to shift into the last stages of life and settling their estate on behalf of the broader family. Those are the sort of stages, around care and healthcare, where financial care is needed as it extends across that journey.”
How much people will need depends on how much care they may require, especially in their final years. So, Lowes noted that it could cost the average $7,242 that AARP identified or “you could definitely be looking at something that could be in the tens of thousands of dollars or higher, in terms of that long, on-going care.”
Canada’s share of the population aged 70 and older is going to grow by more than 60% over the next decade, said Lowes, “so, that’s going to significantly put an additional need for people from a planning standpoint to anticipate these additional long-term care and caregiving support costs”.
RBC has done several things to make its advisors more aware of those needs. It’s built in prompts around long-term care costs or ongoing health costs and the buffer that might be needed in their planning capabilities. It’s introduced job aids to help its advisors understand what potentially different cost scenarios could look like from a client perspective, and it’s noted different long-term and on-going care costs by province, as those can vary across the country, so those can also be incorporated in the advisors’ financial plans for clients.
While Lowes noted that other institutions are becoming more aware of what’s on the horizon for aging Canadians, RBC has partnered with Ryerson’s National Institute of Aging and begun to incorporate the tools and practices to begin to address this demographic’s needs. “So, there’s definitely an increased awareness of that,” he said, “but there’s more work that we’ll need to continue to do to make sure that both the younger and older generations are taking all of this into consideration.”
This is the fourth installment of Wealth Professional’s long-term care series, looking at the costs and concerns of vulnerable aging so advisors can help their clients better prepare for their later years. Watch for the last installment next week. You can also read the rest of the series at How are you financially preparing your clients for vulnerable old age?, Can your clients afford to grow old?, and What retirement savings gaps can you help clients close?