Introduction
In my first Blog post I introduced everyone to the concept of Money in Motion. Again, Money in Motion by my definition is a significant lump sum of capital that comes into an individual’s or family’s life as a result of any number of circumstances: large inheritance, sale of a business, retirement allowance or the sale of Real Estate. The psychology involved in this type of lump sum investment can be considerably different than the long and patient accumulation of capital most people have been involved with. This is definitely when working with a high quality, experienced, independent advisor who provides prudent and disciplined advice can be extremely valuable. Risk tolerance, client investment experience, time horizon and taxation are all important variables that will be taken into account. Consistently, studies have shown that having the benefit of a second pair eyes assisting with investment advice and the experience of an advisor can improve investment results and reduce stress and anxiety.
Case Study: Transition to Assisted Living
Now on to the specific topic I spoke about in my earlier posting; Transitions to Assisted Living. For easier understanding I am going to provide a hypothetical case study that I commonly encounter that best illustrates this process from a financial standpoint. For this illustration I will highlight the situation of Mr. and Mrs. Beasley, a long-term married couple who are in their mid 70’s. Mr. and Mrs. Beasley have been retired since age 65 and lived independently since that time in their 4-bedroom split level home. Over the past few years, it has become increasingly clear that the home is much more than they need and that is more difficult to keep the home clean and as well maintained as they have in the past, because of their age and reduced mobility. They have employed some outside help over the last few years but all the space, stairs etc. have made it necessary to consider their next steps. They have looked at a smaller home but the lack of appropriate options in the market, along with the knowledge that even a smaller home is just pushing out the inevitable decision of a transition to assisted living make them believe it is the right time to make the move. With all that in mind, Mr. and Mrs. Beasley took advantage of the free tours and luncheons at area facilities and have selected one; Paradise Gardens to move into once they have sold their home. Their current health does not qualify them for a publicly supported facility and they prefer the amenities and proximity to family and friends at Paradise Gardens.
Financial Considerations
As they are clients currently, we are very familiar with their complete financial situation and we had a meeting recently to discuss the financial dimension of their move. Both are currently collecting OAS and Mr. Beasley is collecting a full CPP pension. Additionally, they have a spousal RRIF and two TFSA accounts as well as a small non-registered account and
including all sources of income, currently bring home $3800 net of taxes. The Paradise Gardens payment is $5500 monthly and they would like to have an additional $800 month in income above the Paradise Gardens payment. Based on the outlined scenario, the Beasley’s natural question is can we make up the difference of $2500 from the proceeds of
the sale of our home, which will be $750,000? The simple answer is yes. Based on their age and a very conservative rate of return of 4.09% (the FP Canada rate-of-return guidelines for 2023 for 60/40 balanced portfolio less a 1% fee) the Beasley’s would be able to draw their $2500 monthly (indexed annually for inflation at 2.25%) from their home sale capital and still have a sizeable estate value left at age 95 or would have additional capital for any additional necessary complex care health care requirements (see chart below).
So, as I have shown in the above scenario the funding of a private assisted living facility for the Beasley’s is a very realistic scenario for them given the combination of their existing retirement income and the crystallization of the equity in their home. Understandably, each individual or couple’s situation will be unique and must be evaluated on its own merits. The lesson I hope every reader will take from the Beasley’s situation is that the best information will provide for the best solution and that discussing your financial situation with an experienced and qualified Investment Advisor can help provide the necessary information to make a transition to Assisted Living much less anxious.
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This information has been prepared by Mike Holyk who is a Senior Investment Advisor for iA Private Wealth Inc.
Opinions expressed in this article are those of the Senior Investment Advisor only and do not necessarily reflect
those of iA Private Wealth Inc. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and
the Investment Industry Regulatory Organization of Canada.