Plan and save now to fund cost of assisted living

Question

I am worried about the possibility of needing long-term care one day. Frail-care facilities are expensive, and I have seen with my parents how quickly ­savings can disappear when someone requires full-time assistance.

What can I do now to ensure I have sufficient funds to cope should I need frail care or develop dementia?

Answer

When we think about retirement, few of us imagine a future where we are unable to manage our own affairs and need assistance with daily activities. Yet this is one of the biggest financial risks facing retirees.

The uncomfortable reality is that the need for long-term care is becoming increasingly common as we live longer. The challenge is that it is expensive. So, I would recommend that you do the following now:

1. Understand the risk

Many retirees have sufficient capital to fund their normal living expenses, but have not planned for the possibility of needing care. A useful exercise is to ask yourself:

What would happen if I needed an additional R30,000 per month for assisted care?

Would my spouse still be financially secure with this additional outflow?

Would my children need to contribute financially?

These questions can help to identify whether your current retirement plan includes a provision for long-term care.

2. Have a frail care emergency fund

When preparing retirement projections, it can be helpful to build in a reserve specifically for future care needs. This may mean saving more during your working years, delaying retirement slightly, or accepting a more modest lifestyle during the early years of retirement.

When someone suddenly requires frail care, family members often need immediate access to cash. There may be deposits, medical equipment, home modifications, legal costs or caregiver expenses before any longer-term arrangements can be made.

Having a dedicated reserve that can be accessed quickly can make a difficult situation far easier to manage.

3. Consider taking out insurance

Two types of insurance product can be used here: critical illness cover and functional disability cover.

Critical illness cover provides you with a cash lump sum if something serious happens to you medically. The typical conditions here would be a heart attack or cancer.

However, many of these products also cover you if you are unable to perform a number of basic activities of daily living such as washing, dressing, eating or moving independently. This is where this product can help, as it would, in effect, cover you should you need a full-time carer.

Functional disability cover is a lot cheaper and could be a good solution for most ­people. It pays out a monthly income if you suffer a permanent impairment and can no longer perform certain activities of daily living, as mentioned above.

You need to act early. Entry ages vary between insurers and products, but many of these benefits become difficult or impossible to take out once you are in your sixties. Also, when you take out this cover (or if you already have it), you must ensure that you are covered for the whole of your life. Many providers offer cheaper options where the cover ends at a specific age.

This is also a good time to review whether you still need all your existing life cover, as it may no longer be necessary. In some cases, it may make more sense to redirect part of those premiums towards impairment, critical illness or frail-care planning – or simply towards building a larger emergency fund.

The practical step is to ask your financial planner to review your current life, disability and critical illness cover and answer three questions: what will still be in force after retirement, what would actually pay if you needed frail care or developed dementia, and whether the premiums are still being spent in the right place.

One of the greatest gifts you can give your family is clarity. Make sure that your will is up to date and that you have a completed “loved ones file”. And ensure that your spouse or children know where important documents are stored and how your finances are structured. DM

Kenny Meiring is an independent financial adviser. Contact him on 082 856 0348 or at financialwellnesscoach.co.za. Send your questions to kenny.meiring@sfpadvice.co.za

This story first appeared in our weekly DM168 newspaper, available countrywide for R35.