In the past twelve months, I came to know of 4 families who have ailing parents. A common issue faced by the families was who should be the primary care giver and how the financial burden ought to be divided amongst the siblings.
The last thing that the sick parent wants is to burden the family but this is the reality. Caregiving requires someone in the family to make sacrifices, even to the extent of quitting one’s job. Sending an elderly to the nursing home is a last resort and it does not come cheap either.
An interesting observation that I noted is this: Women are predominantly the family’s caregiver. They feel that they are responsible for looking after their parents’ wellbeing. Yet, they have their own long-term needs, because they live longer. What many do not realise is that they are often caught off-guard with such a responsibility and hence, their finances could take a hit and plans get derailed.
Caregiving, A Reality That Cannot Be Ignored
‘Caregiving risk’ is a rising phenomenon in our aging population. Singapore topped the world in life expectancy in 2017 with an expected lifespan at birth at 84.8 years, surging ahead of Japan by more than half a year. However, Singaporeans spent 10.6 years in ill health in 2017, about 1.5 years longer than they did in 1990.
In my planning discussions with clients, caregiving risk is something that I will highlight so that clients are aware and can plan in advance.
Those who are the only child in the family will have no one to share the responsibility with. Other times, it is the child who is closest to the parents that will take on the caregiving role. In most cases, it is because the child sees himself or herself as the main family ‘planner’ or decision maker and therefore, accepts the primary care responsibility.
What Does Caregiving Mean?
Definition of caregiver:
According to Wikipeadia, “a caregiver or carer is an unpaid or paid member of a person’s social network who helps them with activities of daily living. Caregiving is most commonly used to address impairments related to old age, disability, a disease, or a mental disorder.”
The Survey on Informal Caregiving report, commissioned by the Ministry of Community Development, Youth and Sports (MCYS) in 2012 revealed the following demographics of caregivers:
- 60% of caregivers are female
- 55% of caregivers are between the age of 45 to 59 years old
- 65% of caregivers are married
- 35% of caregivers are single (widowed/ divorced/ separated/ never been married)
A finding that stands out is that women are more likely to be a caregiver at the peak of their career (i.e. age 45 to 59 years). The potential impact of caregiving risk on their own financial plans can be significant, regardless of their marital status.
Four Steps to Mitigate Caregiving Risk
Here are four things you can do to help mitigate the impact caregiving risk can have on your retirement and financial plans.
Step #1: Get clarity on your parents’ insurance coverage (or the person you could be caring for)
Consolidate their existing insurance information and create a summary. Be on the look out for the following types of insurance. They are essential protection that every aging parent ought to have.
Hospital & Surgical Insurance
- What is the type of health insurance – MediShield Life or Integrated Shield plan?
- What type of supplementary rider is in place – full rider (covers deductible and co-insurance) or partial rider (covers co-insurance only)?
- Any exclusions? Pre-existing health conditions are usually excluded completely.
Disability Insurance or Long Term Care
- Is there existing coverage for disability?
- Is the payout monthly or a lump sum?
- Is the coverage lifelong or up till a certain age?
- What are the definitions of disability?
Critical Illness Insurance
- Is there existing critical illness coverage?
- What are the covered conditions?
- Does it cover only advanced stage or does it include early and intermediate stages?
- When does the protection end?
- Are there any life insurance and/or annuity plan that could fund the cost of caregiving?
This could be an unpleasant exercise but it is necessary to identify the gaps. At the same time, take note of the total future premiums of these plans, if applicable, as there is a possibility that you will be paying on your parents’ behalf.
Step #2: Transfer the risks to insurers
Small bills are manageable. It is the bigger bills that need to be borne by insurers. After sorting out step 1, you will know where your parents stand in terms of their risk management.
There are 2 outcomes:
Outcome #1: No action needs to be taken as there are comprehensive plans in place. That is indeed a relieve. Now, you can move on to focus on ‘end-of-life’ planning like drawing up a will, setting up a Lasting Power of Attorney (LPA) and Advanced Medical Directive (AMD).
Outcome #2: There are gaps to close. Gaps could include no co-insurance rider for their hospitalization cover, zero or very little disability or critical illness protection, inadequate coverage amount, early expiry of insurance cover.
Wherever possible, transfer the risk to an insurer. This may well be the most cost-effective way to provide for the financing required so that you can create more funds for yourself. Otherwise, there is a need to have extra liquidity (cash savings) as contingency funding.
How do you derive this contingency amount?
The reaction from every client is the same – “Wow! I never knew caregiving can cost this much!” The total amount can be overwhelming. Here is an example of the calculations:
- Funds required for health insurance deductible (assuming no deductible coverage) – $3,500/year x 10 years = $35,000
- Funds required for long term care (e.g. nursing home) – $36,000/year x 10 years = $360,000
- Funds for other expenses (e.g. on-going health insurance premiums etc.) – $5,000/year x 10 years = $50,000
If one parent could potentially need around $450,000 for 10 years of care, then both parents will work out to $900,000. The very fact that it is a substantial amount means that it cannot be ignored.
Step #3: Identify sources of funding for caregiving
With the numbers in mind, start budgeting for the amount in advance and explore where the sources of funds can come from. The funding may come from your parents’ existing savings, liquidation of assets like stocks or even selling off existing property and downgrading to a smaller place. It may also come from the legacy fund that they have set aside for you.
Step #4: Plan for earlier income payouts
The majority of caregivers are between the ages of 60 or 65 will not work for you as you may have to completely stop work or reduce your work capacity earlier than that. CPF withdrawal at age 55 or income from CPF-Life starting at age 65 will not help either.
You will have to intentionally plan out and create your own income to start much earlier, perhaps from age 45 or 50 onwards.
Here are examples of some options that you can consider:
a. Endowment plans that provide a lump sum of money, for example, $100,000 at age 50. You can invest in a few
endowment plans that have different maturity dates.
b. Annuity plans that provide income for a limited number of years, for example over 10 years.
c. Investment portfolios that allow you to draw down without penalties.
The options that work for person A may not necessarily work for person B. Each individual is unique with different circumstance and special requirements. The key is to ensure that money is readily available when you need it, and intentionally build this flexibility into your financial plan well in advance.
This will put you in good stead and the bonus is this – should you never have to use these funds, you know that they can be easily redirected towards your retirement nest egg. It is a win-win on both counts!