Longevity & Aging

No doubt about it: at some point we’re neither semi-retired, findependent or fully retired. We’re out there in a retirement community or retirement home, and maybe for a few years near the end of this incarnation, some time to reflect on it all in a nursing home. Our Longevity & Aging category features our own unique blog posts, as well as blog feeds from Mark Venning’s ChangeRangers.com and other experts.

Your (last) greatest show on earth

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By Heather Compton

Special to the Financial Independence Hub

What do you envision when it comes to your final wishes? Would there be a formal service? If so, who would officiate? Do you wish to be cremated or buried or donate your remains to science?

I get it, end of life conversations are difficult and even if you are prepared to have the discussion, dollars-to-donuts your kids or responsible family members don’t want to go there.

Regretfully I’ve been involved with funeral planning for a number of relatives, and even some clients, and these are the decisions families find most difficult. When the time comes —  and it will —  the question inevitably asked is some variation of “What do you think mom would have wanted?”

If those closest to you know your personal wishes they don’t have to make it up in the funeral director’s showroom while debating between the grand showcase coffin and the budget version you might have preferred!

Bless Mom — she was very clear — cremation by the most frugal means possible, and a nice lunch for our friends.  My Scottish depression-era mother liked the memorial society option because they negotiate funeral cost discounts.

The Memorial Society Association of Canada’s website identifies contacts across the country. A modest membership fee gets you an information package to help document decisions plus they pre-negotiate cost-conscious plans with funeral homes. You can file your wishes with the funeral home or with a memorial society but keep a copy with your other important documents.

Fire Drill Conversations

Because these are difficult conversations, I suggest you treat them like a fire drill: keep it short, discuss what’s needed, make sure everyone understands, document and call it done.  Have another fire drill if your thoughts or wishes change.

Here goes:

► Style of service Continue Reading…

Retired Money: the case for laddering Annuities

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“The more bells and whistles, the lower the monthly income,” from annuities, says Caring for Clients’ Rona Birenbaum,

My latest MoneySense Retired Money column looks at the case for laddering annuities in order to avoid the problem of committing funds to annuities at interest rates that are only now coming off their historic lows. You can retrieve the whole article by clicking on the highlighted text: A low-risky annuity strategy to beef up your retirement cash flow.

Many investors are already acquainted with the concept of “laddering” guaranteed investment certificates (GICs), or bonds with different maturities. Maturity dates are staggered over (typically) one to five years, so each year some money comes due and can be reinvested at prevailing interest rates. This minimizes the likelihood of investing the whole amount at what may turn out to be rock-bottom interest rates, only to watch helplessly as rates steadily rise over time.

The same applies when it comes time for retirees or near-retirees to annuitize. At the end
of the year you turn 71 you must decide whether to convert your RRSP into a RRIF,
cash out and pay tax (few do this), or thirdly to annuitize.

Fortunately, annuitization isn’t an all-or-nothing decision. You can convert some of your RRSP to a RRIF and some to a registered annuity. You can take a leaf from the GIC laddering
concept and buy annuities gradually over five, ten or even more years. As regular Hub contributor Patrick McKeough observes in the piece, laddering annuities can reduce the potential downside: “You could buy one annuity a year for the next five years. That way, your returns will increase if interest rates rise, as is likely.”

Tally up how many annuities you may already have

Mind you, few observers believe in converting ALL your disposable funds into annuities. After all, as another Hub contributor — Adrian Mastracci — notes, you need to take inventory of the annuity-like vehicles you already may have, or expect to have: such as  employer-sponsored Defined Benefits, CPP or OAS. Some investors may have a high component of annuity-like income without realizing it, and many families may already have five or six such sources of annuity-like income.

Certainly you need to consider both the benefits and drawbacks of annuities. The main benefit is they are a form of longevity insurance: making sure you never outlive your money no matter how long you live. There’s a case for having enough annuities that your basic “survival expenses” (shelter, food, heat, transport etc.) are taken care of no matter what. Finance professor Moshe Milevsky is also quoted in the article to the effect there are compelling financial and psychological reason to at least partly convert to annuities. And Milevsky is famous for making a distinction between “REAL” pensions (like DB pensions) that behave like annuities, as opposed to vehicles like RRSPs and TFSAs, which provide capital that only have the potential to be annuitized. Hence the title of Milevksy’s excellent book, Pensionize Your Nest Egg.

But annuities are not perfect. Apart from the common reluctance to commit to buying annuities at today’s still-low interest rates, there’s also the matter of the irreversible nature of the decision to convert some capital to an annuity. You’re handing over a large chunk of change to an insurance company and should you die earlier than expected, they in effect “win,” to the partial detriment of your estate. If on the other hand you live to 120, then YOU “win.”

Continue Reading…

Retired Money: Early or Delayed CPP? Age 65 may be best compromise

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My latest MoneySense Retired Money column has just been published, which tackles that perennial personal finance chestnut of whether to take early or delayed CPP benefits. You can find it by clicking on the highlighted headline here: The Best Time to Take CPP: if you don’t know when you’ll die.

That’s a pretty big “if,” of course since with rare exceptions, our futures are unknowable. As readers of the piece will discover, there is a fair bit of personal anecdotes there, which is hard to avoid in a beat known as “Personal Finance.” As the column notes, we’ve written before that in theory it makes sense to delay CPP as long as possible, since monthly benefits are 42% higher than if you took them at 65. And while you can take CPP as early as age 60, you’d pay a 36% penalty to do so compared to taking it at the traditional age 65.

Since experts are all over the place on this one and have valid arguments for either side, it’s interesting that in practice very few Canadians actually wait till age 70 to start their CPP, even if it is an inflation-indexed guaranteed-for-life annuity. Government stats show age 60 is the single most popular option: according to the federal government’s 2016 data, of the 312,251 who began collecting CPP that year, 126,954 did so right at age 60, with the second most popular start date being age 65, when 93,460 started to collect. Only 4,844 waited until 70.

The balanced case for the traditional age 65

As I relate in the MoneySense piece, I still haven’t started to collect CPP myself, even as my 65th birthday looms this coming April. Continue Reading…

Should you take early CPP benefits or defer as long as possible?

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By Chris Nicola

Special to the Financial Independence Hub

One question that often comes up about Canada Pension Plan (CPP) benefits is whether to take it earlier or later. If you Google this, you’ll get different answers: some say take it early, others say take it later. It seems the experts don’t quite agree, so I wanted to do a thorough analysis myself.

Jim Yih explains that the break-even between taking CPP at 60 vs. 65 is at age 77. In other words, if I live past age 77 I’ll be better off my taking CPP at 65 rather than 60. Based on this he concludes that one should probably start taking CPP at 60, just to be sure. However, I’m still left wondering: “Am I more, or less, likely to live past age 77?”

Now, before I dive into the analysis, let me quickly explain how taking CPP earlier, or later, works. Assuming you will be age 60 after 2016, the CPP early and late withdrawal rules work like this:

  • If you take CPP before 65, you take a 7.2% penalty per year on your CPP payments (up to 36% at age 60)
  • For each year you wait after 65, you gain an 8.4% increase in your CPP payments (up to 42% at age 70)

On face value, 42% more does seem like a pretty compelling case for waiting, but, is it? The catch here is that, it will depend on how long you live. Will you live long enough to capitalize on the larger payments, if you wait to start taking CPP? The real question is: Are you, statistically speaking, going to receive more, or less, total CPP by waiting?

The hard working mathematicians at Statistics Canada have provided us with this handy table, which shows how long the average Canadian can expect to live until, given they have already reached a particular age. What I’m interested in, is what age the average person at age 60 can expect to live until.

Males maximize CPP at 68, women at 70

Currently, a man at age 60 can expect to live another 23 years (age 83), and a woman about 26 (age 86). As these are averages, they seem like reasonable numbers to use for our analysis, and age 60 is the earliest point at which we are able to consider taking CPP.

Continue Reading…

Integrate eldercare into financial planning or pay the price

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By Susan Hyatt

Special to the Financial Independence Hub

People plan for retirement to live how they want in their ‘silver years.’ But have you thought about including eldercare in those plans? Most have not and when reality sets in people are shocked at the cost.

Several years ago I was on a consulting assignment in the United Kingdom when both my elderly parents went into crisis at the same time. To make matters worse, they were divorced and lived in separate towns. Still, I figured I could work it out. I had consulted for governments and global technology companies all over the world with expertise in healthcare. In Canada I helped government bring the healthcare system into the electronic age. I figured I knew the system.

I returned to Canada only to find that, despite all my experience and contacts, it was a challenge to navigate my parents through the healthcare system into new living quarters, due to their dementia and inability to live on their own. I had 40 years of professional experience in the healthcare industry, and discovered that in all this time little had changed. The hospital system is well funded, but after discharge from hospital you are on your own and pay for out-of-pocket costs.

After six months wandering through the maze of eldercare options, I put my retirement plans on hold and started a professional services company that delivers crisis management and planning services for the elderly. We offer seniors and their families advice in estate planning and life planning.

Boomers slow to formalize eldercare plans

We always see people, including those of high net worth, who don’t include eldercare costs in their financial and estate planning. Too many Baby Boomers have not formalized plans for growing old or designated who should care for them. Indeed, people refuse to plan ahead or even talk about aging. Adult children don’t want to question their parents about plans involving money management, never mind health issues that may already be developing.

Today many seniors – especially those with health or mobility issues – talk about whether or not to stay at home. The ‘gold standard’ used to be that you stayed at home as long as possible. But for how long and at what cost?

Before, family members might have taken care of you. But now families are dispersed and most of your neighbours work. So you must pay for help yourself.

Bill Gates’ dementia campaign

Bill Gates just announced he is donating $50 million to Alzheimer’s research and discovery. He realizes there is a dementia epidemic and Alzheimer’s is a leading cause. As he says in his blog, almost 50% of people who live into their 80s will get Alzheimer’s. But health care costs are prohibitive. Current estimates in the U.S. indicate that health care costs and eldercare costs for those suffering from Alzheimers will be five times the costs for normal aging.

Seniors and their adult children must start thinking about a lot of factors if a parent becomes ill. What exactly is Dad’s prognosis? How long will he be able to walk? How long will it be before he’s in a wheelchair? If he stays in the house, what modifications are needed and how much will they cost? What about home care? All, this takes time and expertise, and people need a plan to cost out the options.

Where to start? It’s a good idea to create a family playbook with clear plans and expectations to help reduce the emotional and financial strain that may be ahead. At Silver Sherpa, we use a holistic assessment approach. We assign a Client Director to work with the senior and their family to navigate through key quality-of-life factors such as health issues, legal and financial preparedness, family dynamics, and the needs and wants for living accommodation. This is a proactive approach. It lets our clients recognize the warning signs of an impending crisis and respond in advance rather than slip into chaos.

Canadians are beginning to understand that they must pay for out-of-pocket costs associated with aging, and as care needs increase, those costs could skyrocket. Earlier this year CIBC released a study called ‘Who Cares: The Economics of Caring For Aging Parents,’ and it’s an eye-opener. According to the study, in 2007 about 14% of Canadians were aged 65 and older, but now it’s 17%, and in ten years it will be 22%. Today, 30% of working Canadians with parents over the age of 65 have to take time off from work for eldercare duties.

40% are uncomfortable talking about eldercare/illness

The study also found that 40% of respondents were uncomfortable talking about eldercare and illness because they figured their parents would think they were after their money, and that only 23% of Canadians with a parent 65 or over have a financial plan for their senior years. What’s more, Continue Reading…