Sandwich generation 2.0: Who will pay for baby boomers’ long-term care costs?

Baby boomers have long been known as the sandwich generation, squeezed between the needs of their not-yet independent children and those of their less and less independent parents. But as Canadians who are today in their late 50s, 60s and early 70s age, they are, metaphorically speaking, moving from the middle part of the sandwich to slice of bread on top.

So far, the transition has been relatively painless, in part because it has just started and in part because even the oldest boomers still have years of good health ahead of them. But in a little more than a decade, the weight of the upper bun could be difficult to manage, experts warn.

That’s when a significant minority of first-wave boomers will start to grapple with the ailments of age and need “significantly higher levels of care,” a recent report from Ryerson University’s National Institute on Ageing (NIA) warns.

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Ignored & Ignited: Seniors feeling neglected by political leaders

Ignored & Ignited: Seniors feeling neglected by political leaders

Over the next 30 years, the number of Canadians over age 85 is going to more than triple. That will push the public cost of caring for seniors from $22 billion a year today to a whopping $71 billion in 2050, the Ryerson researchers project in a first-of-its-kind project.

The drain won’t be just on government coffers. Two-thirds of the work of caring for seniors currently falls on the shoulders of unpaid family members. If that doesn’t change, work required of caregivers will increase by more than 40 per cent, from the current average of five and half hours of unpaid work per week to nearly eight hours.

“If all unpaid hours of care inside the home were instead paid publicly, this would add $27 billion to public sector costs by 2050,” the report reads.

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But it’s not just a matter of taking care of a larger number of seniors who are expected to live much longer, said Bonnie-Jeanne MacDonald, director of financial security research at NIA and co-author of the report. Likely, the burden will also fall on fewer shoulders, she added.

Canada’s fertility rate fell off a cliff after the mid-1960s, leaving fewer young people to take care of the old. Women, who have traditionally been the caregivers, are much more likely to have jobs. And grown children are more likely to have moved far away from their parents’ home.

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“People don’t realistically live close enough to their parents to help in the way that we would have, say, 50 years ago, where you just live next door to mom and dad; you drop in to help them,” MacDonald said.

The consequences are potentially dire for both baby boomers and their children.

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Money 123: why deferring withdrawing from your RRSP may be a bad idea

For seniors, the risks range from soaring costs in the latter years of retirement to receiving inadequate care. Long-term care isn’t covered by the Canada Health Act, and provinces and territories have different standards on what is and isn’t covered. The result is a patchwork public system with many gaping holes, according to the report.

Finding a spot in public nursing homes is getting harder and harder, meaning that “those facilities are not available for people unless they are increasingly more frail and more sick,” said Alexandra MacQueen, a certified financial planner and co-author of the book Pensionize Your Nest Egg.

And even if you do find a spot in a place that provides continuous care, you’ll likely have to shoulder certain costs out of pocket.

Staying in a long-term care facility can cost between $900 and $5,000 a month, depending on the province and room type, according to the Canadian Life and Health Insurance Association (CLHIA). For in-home care, hourly rates can be anywhere between $12 to $90 depending on the level of assistance required, CLHIA figures show. The average cost of eight hours a day of in-home care stands at nearly $75,500 per year, Sun Life has previously told Global News.

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READ MORE: What’s the best way to generate cash from your investments in retirement?

For those who can’t afford to pay, the worst-case scenario is to become another statistic in Canada’s growing “hallway medicine” problem, MacDonald said.

For adult children, the risk is having to scale back paid work or take early retirement in order to take care of mom and dad. This could have a significant impact on the lifetime earnings of young generations, who have generally started working and having their own children at later ages.

This is something that younger Canadians are going to be a part of as well,” MacDonald said.

As for baby boomers, they are “strongly advised to take a long, hard look at their own personal circumstances and plan ahead,” the report urges.

Money 123: Ensuring your savings last through your retirement

Money 123: Ensuring your savings last through your retirement

Planning ahead

The trouble is, however, that there is no straightforward way for seniors and their families to prepare, MacQueen said. Part of the problem is the sheer difficulty of deciding how much to set aside for long-term care costs — assuming one is able to set anything aside at all, she said.

Planning for chronic care costs makes the retirement math look simple. Most people have a general idea of when they’d like to retire, how much they’ll need to live on, and how many earning years they have left to match their savings goal.

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With long-term care, every variable can feel like a wild guess, according to MacQueen. How soon will you start to need it? How much of it will you need? And for how long? Those are all difficult to predict for most people.

READ MORE: What’s the best way to generate cash from your investments in retirement?

What’s currently available to Canadians is a few imperfect solutions:

  • Long-term care insurance

In a way, the issue of long-term care costs is a “classic insurance dilemma,” MacQueen said. Insurance serves to protect you against the risk of events that are unlikely but typically have very steep costs when they do happen. That’s why you buy home insurance even though the chances of your house burning down are low.

It turns out you can buy insurance to protect yourself against the chance of steep bills in old age, too. Policies, sold by private insurance companies, may cover the cost of some expenses, like private nursing care, up to a predetermined maximum or provide a certain level of weekly or monthly income that beneficiaries can use as they see fit.

The problem, though, is that long-term care insurance in Canada isn’t taking off. Uptake has been limited and those who do take out this kind of insurance tend to be those most likely to need it, which has resulted in steep premiums and insurers simply getting out of the business, according to the NIA report.

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Another issue, MacQueen noted, is that the risk of incurring long-term care costs — unlike the risk of your house burning down, in most cases — isn’t sudden and accidental: it increases as you age.

READ MORE: Worried about outliving your retirement savings? There’s insurance for that

  • Earmarking some of your savings for long-term care costs

One alternative to buying into expensive long-term care policies is to be your own insurance, MacQueen said. You could ramp up your own savings and earmark part of the money to cover potentially higher living costs later in retirement. The catch with that, though, is that you may not have the financial room to do so and might over- or under-estimate how much you’ll actually need.

READ MORE: How much do you really need for retirement? We did the math

Another possibility is buying annuities, which generally provide a preset level of income for life. But annuities are better suited to hedge against the risk of living longer than you expected rather than the risk of inflated living expenses, MacQueen said.

Canadians can use annuities as a way to supplement their income later in retirement but can’t postpone receiving payments beyond age 72 if they’re holding the annuity in a registered retirement account, as is the case for most Canadians. The 2019 federal budget proposed the creation of so-called advanced life deferred annuities, or ALDAs, which would allow Canadians to defer payouts until the end of the year they turn 85. However, the measure has yet to be implemented.

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An alternative approach is to count on the annuity, Old Age Security (OAS) and the Canada Pension Plan (CPP) to cover the basic living expenses you can predict and keep a chunk of the rest of your personal savings untouched for the far less predictable long-term care expenses, MacQueen said.

READ MORE: Federal budget makes it easier for working seniors to keep more of their money

Finally, MacQueen suggests that seniors look to their home equity as a source of cash to cover rising costs at the end of retirement. The idea is for homeowners who have seen a huge increase in the value of their properties to live on their pension, savings and government benefits for as long as possible but use their home equity if they need more funds to cover long-term care. That may mean selling the house and moving to a senior care facility or staying put and using a reverse mortgage to pay for in-home care, MacQueen said.

READ MORE: Reverse mortgage — Is this the solution if you retire cash-poor?

“Canadians tend to think of homes as this sacred thing they’re going to leave to the kids,” MacQueen said.

That mentality comes from a time when home values were lower and interest rates were higher, she added.

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Today, though, “if you own a home, that’s a store of value you can tap.”

© 2019 Global News, a division of Corus Entertainment Inc.

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