A Future Filled With Seniors, A Risk Yet Considered

*From Adrian: I began writing this on the weekend when I first learned of the conditions of the retirement residence in Dorval. Since then it has been revealed that nearly 50% of COVID-19 deaths in Canada are in long term care facilities. You can read more about that here from The Globe And Mail: Outbreak at senior’s homes linked…

Senior's Risk

Canada’s demographic story is neither unique nor surprising. Like many other nations (most nations in fact) its largest demographic is rapidly aging and requiring an increasing number of services in both health care and assisted/retirement living. Like many other nations its only population growth is through immigration as people have largely stopped having enough kids to grow the next generation. It is a slow moving story, but also an inevitable one.

This is both well known and uncontroversial. Long before John Ibbitson and Darrell Bricker had written Empty Planet, before Hans Rosling was using a clever moving chart at TED Talks to explain population trends, Canadian professor David K. Foot had written his book Boom Bust and Echo, detailing the future of the Canadian population. Finally those predictions are starting to be realised, and investors like myself are eagerly looking for ways to capitalize on an enormous demographic change.

One such way will be in Senior’s Residences, Assisted Living and Long Term Care Facilities. With Canadians living longer Statistics Canada points out that 7.1% of Canadians over 65 live in “collective dwellings” like retirement residences, a number that jumps to 31.1% for people 85 and older. That number holds true when we look at special care facilities, with 29.6% of people 85 and over.

Senior Demographics

The logic is appealing and direct. In 2016 16.9% of Canadian were 65 or older, and 2.2% were 85 or older. That was a 20% increase since 2011. With more Canadians approaching 65 and 85 than ever before the need for retirement residences, assisted living and long term care facilities will be greater than ever. Given the time it takes to secure and build new facilities, resistance at local levels to having them built and the high costs of creating and managing these businesses plus the government oversight, the business is as close to a sure thing that investors could hope to find. How could this go wrong?

I’ve been writing about demographics for a while. Here are some of the other things I’ve had to say:

The OHIP Gambit (October 23, 2015) – How an aging population will likely impact the province’s finances and imperil our health care.

The Demographic Deformation (October 9, 2015) – Lots of old people means an outsized impact on financial markets.

4 Reasons Why Planning for Retirement is Getting Harder (October 22, 2014) – People living longer means planning for longer with more uncertainty. Here’s four things impacting that planning.

Is It Time To End The “Senior” Citizen (April 27, 2015) – Being a senior comes with lots of perks, but increasingly meaningless when you’re likely to be a senior for two decades.

Enter 2020, a year that continues to feel like being slapped in the face by a large fish. Investors are accustomed to thinking very little about the business practices and oversight of the companies they invest in, but perhaps that should change, especially when they invest directly. Scandals, abuse and personal harm are matters for owners, and owners, even if removed from the daily running of a business should remain engaged. This remains especially true if the business deals in the wellness of people.

To my point, behold the unfolding scandal at a privately run senior’s residence in Montreal. I apologize at how graphic these details are and if you are at all squeamish please feel free to jump to the next paragraph. When health officials were finally called into the residence it was described as a “concentration camp”. Some residents had fallen on the floor and been left there. Others hadn’t been fed. Two people were found dead in their beds and hadn’t been recognized as such. Reportedly there were only two orderlies for the entire 134 bed facility. Some patients were so dehydrated they were unable to speak. Patients had been left in diapers, unchanged for several days. One in triple diapers with feces leaking out. These details are beyond horrific and have no place in a story about a Canadian senior’s residence. In total there had been 31 deaths over the previous few weeks.

As an investor, what should you think about such a discovery? Beyond its horror show details, more suited to a zombie apocalypse movie than real life, how should a lone investor think about their role in this?

One thing to consider is that due diligence should begin to increase the more certain an investment looks. Businesses with very high barriers to entry (the ease or difficulty of getting involved in a sector of the market), that are part of effective oligopolies or are essential services are not “set it and forget it” services. If anything the risk of abuse, neglect or corruption is higher the more essential and irreplaceable the businesses becomes. For the average person at home this may not be a feasible or realistic thing to do, and an individual investor may not be in a position to attend annual general meetings, or even be aware  of how to solicit and get answers from corporate boards.

This is one reason to consider using a mutual fund, or an investment that functions like a mutual fund that dedicates energy to analyzing and understanding businesses. It is also a reason for investors working with a financial advisor to ask questions about the nature of the investments they are buying, especially if they seem like “no lose” scenarios. If something makes intuitive sense to do, we should be clear as to why more aren’t doing it. Lastly, if you are investing in a private investment sold through an offering memorandum you should make sure someone is paying close attention to the details. There will always be blind corners in businesses, things you can not know, but you should have comfort that someone is providing verifiable oversight.

An aging population creates new investment opportunities, and senior’s living will be one of them. A business that’s cash rich and necessary, the appeal is obvious. But businesses that are responsible for providing care and looking after people’s well being also have the pull to maximize their profits, squeezing returns wherever they can. That push and pull should sit on everyone’s mind as they consider the new opportunities coming into focus.

Information in this commentary is for informational purposes only and not meant to be personalized investment advice. The content has been prepared by Adrian Walker from sources believed to be accurate. The opinions expressed are of the author and do not necessarily represent those of ACPI.

The Ballooning Cost of Growing Old

Senior Couple Enjoying Beach Holiday Running Down Dune
The reality about retirement is that this bit can be fleetingly short compared with the scope of being elderly. 

Getting old is something that comes to us all and is rightly considered a blessing of our modern world. Free from most wars, crime and disease the average age of Canadians continues to rise, with current life expectancy just over 82 years.

But being old is no fun. From your late 70s onward quality of life begins to decline in a multitude of ways. From a media perspective we tend to focus on outliers, like the oldest marathon runner, or the oldest male model, men and women who seem to exemplify youth well past their physical. In truth though the aging process is simply a battle that we have gotten good at slowing down.

20696006In his excellent book Being Mortal, author and practicing surgeon Atul Gawande goes through the effects of aging, the limits of science to combat it and how we could be using medicine better to improve quality of life for the elderly. It’s a great and sometimes upsetting read that I recommend for everyone.

One of the great challenges that looms on the horizon is the cost of an aging population. The dependency ratio for the elderly (the metric of people over 65 against those between the working ages of 20-64) is rising, putting higher living costs on a smaller working base. In Canada the dependency ratio is expected to climb to 25% by 2050, and is currently at 23.77% as of 2015. That may not seem like much, but in 1980 (the year I was born) the ratio was 13.84%.

ch1_graph3.0-eng

Since old age is also the point where you consume the most in terms of health care costs we should be aware that Canada’s population isn’t just aging, but that our retiring seniors are poised to become the biggest and most expensive demographic; financially dependent on a shrinking workforce and more economically fragile than they realize. That’s a problem that nations like Japan have been struggling with, where old age benefits are extensive, but the workforce has dwindled.

In other articles we’ve touched on the various aspects of the rising costs of old age. I’ve written about: the importance of wills, the impact of an aging population on our public health care, how demographics shift both investing patterns and warp our economic senses, why seniors may be getting too much of a break economically, how poor land management has made cities too expensive and that’s hurting retirement, and how certain trends are making retirement more expensive. Often these are written as issues in a distant (or not too distant) future. But increasingly they won’t be.

This past week eight long term care facilities have said they will be leaving Toronto. As part of a bigger project, long term care spaces are being rebuilt to meet new guidelines. A new facility is larger, more spacious and designed to maximize medical care. However land costs within Toronto are proving to be too high to be considered for the updated facilities. Why is that? The government pays $150 a day per bed in a facility like the ones leaving. From that subsidy costs for maintenance, nurses, janitors, medicine and food as well as the profit of the business must all be extracted. Margins are thin and building costs in the city are huge. Six more facilities are also considering leaving the GTA for cheaper land.

 

Toronto's City Hall, Nathan Phillips Square. (Shutterstock)
Toronto is a wonderful city, but we’ve done a bad job of making sure that we can still afford to live here. 

 

Eric Hoskins, health minister for the province, is arguing that the subsidy the government provides is enough, but he is already embroiled in other fights with the medical community. In 2015 the ministry cut doctors fees and began clawing back previously earned money as well. Currently lots of people in Ontario struggle to see their family doctor, and there are 28,000 elderly waiting to get access to long term care facilities, and only 79,000 beds. Coincidentally this is also the year that the Ontario Liberals balanced the books. Something about that should give us pause.

This is the reality of getting old in 2017. Costs are rising and are expected to continue growing. Some of this you can’t avoid, and many of us will end up in private retirement homes, assisted living situations, dependent on the government or even family. But there are steps that can be taken to protect assets and insulate against protracted medical or legal disputes.

Here’s a list of eight things that can help you with retirement and your estate:

  1. Keep an updated will and a named executor young enough to handle your affairs. I know it goes without saying, but its extremely important and many of us don’t do it.
  2. Ensure that you’ve got a Power of Attorney (POA) established and that it is current.
  3. Make sure you have a living will and discuss with your family your expectations about how you want your life to end.
  4. Look into your funeral arrangements while you can. It seems macabre, but funerals can be wildly expensive and burdensome to thrust onto grieving family.
  5. Create a space where all important documents can be found by your next of kin and with a detailed contact sheet so people can help settle your estate.
  6. Look into assisted living options early and consider what you might be able to afford. Have your financial plan reflect some of these income needs.
  7. Consider passing along family heirlooms early. Is there a broach, or a clock that you would like to see in someone’s hands? These conversations are easier to handle when you are well than when you aren’t, and downsizing frequently involves saying goodbye to long loved possessions.
  8. Big assets like houses and cottages should be discussed with family, especially if there is a large family and the assets might need to be shared. A lot of family strife comes from poor communication between generations and among siblings.

There will be much more to say about getting old, about protecting quality of life and managing the rising costs of living on fixed incomes. We gain little from sticking our heads in the sand and hoping that we will be healthy and strong to the day we die. In reality our retirement plans should better reflect not our most hopeful ideas of retirement but instead our greatest concerns and seek ways to preserve our quality of life.

From the Desk of Brian Walker – In Retirement Go Small

ImageFor many people approaching retirement, there may be mixed feelings about their house. Perhaps not their house, but their home. Homes are where important things happen for families and for many soon-to-be retiring couples there is sometimes some question about whether you should sell your home, or keep it in retirement.

While you may have lots of fond memories about your home however (and while your children may never forgive you for turning their room into a train model city) selling your family home in retirement can be liberating, financially and personally. Downsizing in retirement can represent an exciting new phase of your life, providing you with more leisure time, additional funds for travel and a considerable reduction in the amount of manual household chores.

I speak from experience, having recently moved from a country home of nearly 4,000 square feet and three acres of grounds to a modest 1000 sq ft condo in downtown Toronto. But deciding to make the move was difficult. I knew the benefits of parting with my home, the extra money I would have and the lack of physical work, etc. But I also recognized that I would also have to part with many things I had acquired in my life. In the end what finally drove my decision was the realization that caring for my home was now more a burden than a joy.

In most cases you will never be as healthy, or as in good shape as we are today. Retirement is no longer about spending your remaining years in your slippers. I have a bucket list of things I’d like to do, trips I’d like to take and a granddaughter I enjoy playing with. Your retirement should be about what you want, and while the decision to downsize our houses and change our lifestyles can be difficult, we shouldn’t be squandering our active years shackled to our homes.

It took me a year to make up my mind that it was time to downsize. Ultimately a pro and con list really helped crystallize my choice. There was lots of work to do, lots of emotion and stress associated with the move, but after six months in my new home I know I made the right decision.