The inevitable

  By Guest Blogger Sinan Terzioglu

By 2030 seniors will number over 9.5 million and make up almost a quarter of the Canadian population.  That’s up from approximately 16% in 2015.  By 2036, the average life expectancy at birth for women will rise to 86.2 years from the current 84.2 and to 82.9 years from the current 80 for men.  An aging population will significantly increase the cost of healthcare as the average per-person spending on Canadians 65 and over is more than four times higher than those under 64.

Do you have a plan for your aging parents? 

As the length of our lives increases, so does our need for long-term care.  A CIBC report stated that caring for aging parents costs Canadians an estimated $33 billion a year in out-of-pocket expenses and time taken off from work – and these costs will continually rise.  More and more of us are realizing we’re not prepared for these costs, so it’s important to prepare for them as part of your family’s long term financial plan.

It’s never too early to start the conversation with your parents and loved ones.  Begin by gathering information about where your parents keep their safety deposit box and important documents.  Make a list of their bank and investment accounts as well as documents such as insurance policies and wills.  Get the names of their lawyer, financial advisor and accountant.  You should also make note of your parents’ income and how much comes from government pensions, employer pensions and investment portfolios.  Discuss what they would like longer term and when/if to downsize their home.  Having an idea of all of this will help you and your family plan in advance of challenging times rather than during them.

Most children don’t feel comfortable speaking to their parents about money.  On the other hand, aging parents don’t want to be a burden on their adult children.  The cost of this silence can be very high.  A significant portion of professional, equipment and retirement home expenses are being paid out-of-pocket by families and are often a shock to most.  The average 2019 monthly rent for a standard retirement home in Ontario was $3,758. Costs can also significantly increase for dementia patients or for additional one-on-one nursing assistance so it is crucial to be prepared.

A majority of long-term care decisions are made during a medical crisis when emotions and stress levels are high.  Needless to say this is not the best time to be talking about money and major decisions with your parents and loved ones, so having the conversations early on is very constructive.  Healthcare costs are likely to continue increasing at a rate higher than inflation which makes early preparation even more important.  This may affect your plans on how long to work and how much to spend on significant purchases.

Assign Power of Attorney (POA)

A power of attorney is a legal document that gives one person, or more than one person, the authority to manage property and make financial and medical decisions on behalf of a grantor. A POA makes life much easier in the event of a crisis as circumstances change very quickly. The Canadian Medical Association estimates the number of Canadians living with dementia is expected to rise 66% over the next 15 years, and the risk of dementia doubles every 5 years after the age of 65 so it’s critical to plan for this while your parents are still of sound mind as lawyers can refuse to facilitate a POA once there’s a diagnosis of dementia.
Understand Important Tax Credits

A non-refundable tax credit reduces your tax bill.  For example, a $1,000 tax credit will directly lower your tax bill by that amount which is different than a tax deduction, which lowers income resulting in less tax.  If you are paying out-of-pocket for a loved one’s medical expenses like nursing home care some tax relief can come through Medical Expense Tax credits (METC).

Some Canadians are choosing to age in their homes and are installing stair lifts and wheelchair ramps.  If you paid for a home renovation or addition to help with a senior’s accessibility, the home accessibility tax credit (HTAC) will allows a credit of up to $1,500 per calendar year per individual.  If you provide for a loved one with a disability, injury or illness you can claim the Canada Caregiver Credit (CCC).  The person receiving your care does not have to be living with you for you to qualify.

Remember to save for the long-term

If you are not saving and investing at least 15% of your income, you’re not putting aside enough.  Make this rate of savings a priority before considering what a housing and lifestyle budget can be.  It is never too early to start saving and every year you delay will cost significantly more.  Life will inevitably throw curve balls at you and having liquid financial assets will help handle them much easier.

Over 747,000 Canadians now live with Alzheimer’s or another dementia.  Last year the lifetime cost of care for a person with Alzheimer’s was over $400,000 and families bear approximately 70% of that.  You must continually consider all potential scenarios aside from just raising your children and your own retirement goals.  The earlier you learn and understand your loved one’s long term financial circumstances, the better prepared you can be.  For some Canadians, that may mean delaying significant expenditures such as home ownership until a strong financial base has been built.

Sinan Terzioglu, CFA, CIM, is a financial advisor with Turner Investments, Private Client Group, Raymond James Ltd.  He served as vice-president of RBC Capital markets in New York City and VP with Credit Suisse in Toronto.

About the picture: “Chief was a Airedale Terrier whose owner lived on Bull’s Lane, which would be on Hamilton mountain,” writes blog dog Scott. “He was a wanderer so his owner arranged for him to have an account with the Yellow Cab Company. They kept an eye out for him and brought him home when they saw him. In 1946, during the Stelco strike, one of his favourite hangouts was the strikers’ tent outside the gate where he was assured of company, day or night. That would be about four km down the escarpment from Bull’s Lane as the crow flies. Here he is after being brought home.”

The flip, part Deux

Changes in the wind. Pay attention.

The Bank of Canada is pulling back on the throttle. Finally. Weekly bond-buying that stood at an incredible $5 billion every seven days last year and dropped to $4 billion in the autumn is heading down to three. This means the ongoing suppression of interest rates in the bond market (where the central bank now owns 40% of all debt) will lessen. It opens the door for the creeping normalization of rates, as the virus recedes.

There’s more. Did you see the latest inflation stat?

Yeah, I know. The government numbers are ridiculous since we all know life has become hideously more expensive. But this is significant – the cost of living officially doubled from February (1.1% annually) to March (2.2%). So what? Well, 2% inflation is the central bank’s big target. Once we get there, it’ll consider raising its benchmark rate.

Economists and Mr. Market saw that happening in a year. The odds of hikes commencing in 2022 were 60% before Wednesday’s announcement. Now they’re 100%, which poured gas on the dollar. All those folks who come here to tell you the cost of money will never increase and ‘the government won’t let housing decline’ need a new hobby.

There’s more. Vaccines. So far 10.5 million doses have been squirted into shoulders, which means 27% of the adult population has been jabbed. We may still be struggling with the Third Wave, but we know where this is headed, and when. Ten million more doses will arrive next month. About 1% of the population gets inoculated each week, and UK experience shows that at a level somewhere around 40% life gets a lot better.

The central bank is turning off the stimulus tap and telling markets to expect higher rates sooner for one reason: economic recovery. The bankers say growth this year will be 6.5%. Just weeks ago the forecast was 4%. In the world of CBs, that’s elephantine. We’re likely just weeks away (maybe a dozen of them) from everything changing. The next few months will be difficult, volatile, and filled with news of virus victims, new restrictions and a struggling health care system. But it’s finite. The light’s there. End-of-tunnel days lie ahead.

By the way, here’s today’s reaction to yesterday’s blog from the realtor who reported the housing market flipping the day before:

I don’t see an actual rate increase yet, but rates will drift north when the bank gets out of the bond market. I do see the prime rising in 1/4% increments after the election regardless of the outcome. The years run up in real estate prices is attributable almost entirely to  lower rates, so some price decline is inevitable as the rates climb. Judging by your blog there wasn’t a lot of agreement with my comments concerning a cooler market. Maybe a blip, or the very early stages of a correction. Some agents are worried, particularly the 20+ year vets who know that prices don’t rise forever.

It’s a lesson lots of newbie agents, house speckers and inexperienced homeowners have yet to learn. Yesterday we yakked about a potential market flip in real estate. The reasons – prices most people can’t afford and (mostly) a surge in listings. As Covid recedes, expect a dearth in inventory to become a flood. And why not? Astute owners will want to cash in on the highest valuations in history, and the vaccine will make selling a property much less scary. Once prices start to soften, FOMO recedes. Gone is the fear sellers have that they’ll never be able to buy again.

By the way, check out the latest StatsCan borrowing numbers. Maybe things aren’t exactly as they seem. Maybe the ‘bubble market’ is already leaking gas, and the breathless media missed it.

Mortgage borrowing in the latest monthly report fell 12% from January, and has toppled since last autumn – down over 60%. Yes, house sales have been booming (up 40%), but this is evidence a big whack of those resulted from move-up buyers with equity. No surprise there. The kids are being priced out. First-time buyers are the most important fuel of the housing market. When the fuel disappears, the fire fades.

Now, do the Bank of Canada’s moves – cutting back on stimulus and changing its rate-increase timetable – mean the end of the real estate insanity?

Nah, of course not. There’s an ample supply of greater fools left to keep realtors busy. March home prices shot ahead a big 1.5% month/month says Teranet, plumping the most in Halifax, Hamilton and Toronto. Meanwhile CREA reports the average price of a house nationally jumped 31% year/year. It ain’t over yet.

But as supply increases, vaccines flow, the GDP reflates and the end of emergency interest rates grows nearer we’re closer to the end of this bizarre episode than the beginning. Nothing has been normal since February of 2020. Those who think what Covid brought was permanent societal change will learn otherwise. It’s not different this time. It never is.

About the picture: “This is Juno, a 5yo border collie waiting for her next command in sunny East Van,” writes Dave. “Perfect obedience came as a standard feature with this one, unlike the unruly pack found sniffing around your blog. She would be thrilled to be your daily pin up girl/boy.”