The costs of senior living can be challenging for many families, especially as parents age and as medical conditions surface.
In addition to home maintenance and in-home care, finances may be needed for potential downsizing, rent costs for seniors residence, and/or other services, such as transportation and companionship.
None of us at any age can know for certain how our health will evolve, and the unknowns can hinder financial planning efforts. However, despite uncertainty, there are some steps that one can take to guard against the risk that they might outlive their available finances.
The foundation of budgeting for senior living is the same as budgeting for anything else; it boils down to knowing your income, planning for your potential expenditures, leaving some room for unexpected events and making sure your expenditures don’t exceed your income.
Understanding Your Assets And Income
To start, make a list of income sources that either currently provide you with cash or can in the future.
Here are some examples:
- Private Pension Plan (e.g. from a former employer)
- Investment Income
- Long Term Care Insurance
- Canada Pension Plan
- Old Age Security
- Veterans Affairs
Next, make a list of your main assets as they too can be a source of funds. Some examples of notable assets are:
- Real Estate
- Life Insurance
- Business Ownerships
- Valuable Personal Belongings (e.g. fine art, antiques)
Now, let’s turn to expenses. Make a list of your current expenses and the amounts that you spend each month for each item. After, do some realistic research and planning around potential future expenditures. Here are some questions to consider:
- Do you want to stay living at home for as long as possible, and are you open to getting in-home help? If so, what are the hourly rates for in-home care in your area, and how many hours do you want? Are you willing to hire a caregiver directly vs through an agency?
- Do you see yourself moving into an assisted living residence? If so, what are the costs of the residences in the area in which you want to live?
- If your health evolved to a state where a move to a full care residence is needed, can you afford private pay residence? What are the costs for the care residences in your area? If you foresee you’re likely to seek a government subsidized care residence, what is the percentage of the costs that you would have to pay?
- As you age, there might be other services you want to budget for while you continue living at home, such as meal delivery service or transportation service (if you stop driving). How much do these services cost?
Talk to your financial planner about constructing a financial model for yourself, which will be influenced by any wishes you have for estate planning and for passing on assets to your family. Here are some things to consider in constructing your financial plan:
- Are there any assets that you feel must be passed onto the next generation?
- Which assets are you willing to sell or leverage in order to fund your senior living costs?
- Are you married? If so, you will want to develop a plan with your partner in mind and include contingencies for both, as it is likely that you each will require care services at different points in time.
- Include inflation in your budgeting of costs.
- Plan to have costs increase as you age due to escalating health needs.