Planning around health and illness in retirement

By 2030, it is predicted that close to one in four Canadians will be a senior¹, and chronic conditions will be prevalent in more than 90% of the population over age 65². While we enjoy the privilege of a strong, publicly funded health care system here in Canada, longer life expectancies, the need for long-term care, and additional health-related costs can all have a big impact on your retirement savings and lifestyle.

Here are some tips on how to anticipate health-related expenses and ensure your financial plan does not underestimate them. Planning ahead to cover these costs will allow you to balance your health and financial priorities in retirement.

At its core, proper planning can ensure that your transition into retirement is a positive one without financial stress. Creating a comprehensive financial plan requires you to be realistic about estimating your income and expenses across all stages of your retirement.

During your retirement, income typically comes from these major sources:

1. Government benefits, including the Canada/Quebec Pension Plan and Old Age Security;
2. Employer-sponsored pension plans, group RRSPs and/or stock option plans;
3. Individual savings and investments, including RRSP/RRIFs, TFSAs, real estate, non-registered investments, and savings; and
4. Self-employment or employment income from an encore career or passion project.

Income projections usually anticipate changes in your spending as you age, with assumptions for inflation and investment returns.

Unfortunately, too many plans overlook your retirement goals. Meaningful discussions should take place about your vision for your lifestyle as a senior and any related health considerations—all of which will have an impact on your expenses. You want to talk to your Scotiabank advisor about a financial plan that takes your vision of retirement into consideration, including health considerations and potential expenses relating to health care.

Women face unique challenges in our aging population. Female seniors require more resources over their retirement as they are likely to live longer. Furthermore, impacting their capacity for savings is the gender wage gap and the fact that females often take temporary unpaid or reduced pay leave from the workforce to assume responsibility for child rearing or senior caregiving. Women’s wealth accumulation may also be affected as women have lower financial literacy scores and less confidence in making financial decisions³. This literacy gap is more pronounced among seniors who may become responsible for financial matters for the first time upon the death of their spouse.

Lastly, women at any age are more likely to develop Alzheimer’s⁴ disease, and Multiple Sclerosis is three times more common in women⁵. Living with a critical illness can also result in higher health care costs.

No matter your age or lifestyle, everyone has out-of-pocket health care expenses. Healthy lifestyles, age and genetics can impact these costs, and over the course of a lifetime these expenditures can become significant.

Assuming that health-related costs will be fully paid by provincial health care plans, these programs may only cover some of the costs for prescription drugs and long-term care facilities. Provincial coverage varies widely for prescription drugs and restricts the types of medications that will be covered. Consequently, it should be assumed that certain drug costs will not be reimbursed by the government. More likely, specialized treatments, private nursing or specialized residential care facilities will be out-of-pocket expenses. Examples of costs that should ideally be planned for include: health insurance premiums, dental services, naturopathic treatments, wheelchairs or other transportation devices, hearing aids, home renovations required to accommodate a disability, in-home companionship or care, and specialized vehicles.

Retirees who are increasingly concerned with funding the cost of care may have good reason to be worried. Health care costs are predicted to double from 2011 levels by 2031⁶, making it essential to contemplate their impact on your retirement plan.

Workplace health and dental coverage typically ends at retirement. Some retirees have ongoing coverage paid by their employer or the option of continuing coverage at their own expense.
To make an informed decision on health insurance, it is important to understand the coverage that is available. Prescriptions, paramedical services, vision care, and dental care are often options, but there may be limits to annual or lifetime coverage. Pre-existing conditions prior to purchasing coverage may be exempt entirely from the benefits.

Critical illness insurance is a type of coverage that can protect your financial health. A typical policy will cover a range of illnesses outlined in the contract; if the insured is diagnosed with one of the conditions covered, after a prescribed waiting period the policy will pay a lump sum, tax-free benefit. Having critical illness insurance ensures that, if you do fall ill, your medical concerns will not be compounded by financial ones.

When long-term care is required, the costs can be high. The average cost for a long-term care facility in Canada can range from $800 to $8,000 a month, depending on the location and type of care. Over an extended period, these costs could threaten the financial security that you’ve worked hard to achieve. Long-term care insurance provides a regular benefit that can be used to pay for care required in your home or in a care facility. A benefit would become payable when the insured is unable to perform a certain number of activities of daily living (ADLs) that were outlined in the contract. This type of protection can ensure quality care without financial stress.

There are tax credits and deductions available for individuals with disabilities, their supporting family members and caregivers. The purpose of these credits and deductions is to provide some relief for health care costs. Being eligible for these programs can also open the door to other federal or provincial programs, which could alleviate the pressure of expenses on your retirement savings.

When your transition to retirement is well planned out, it can be the most rewarding time of life. Creating a new social network, maintaining physical activity, exploring creative discoveries and enrolling for ongoing learning all contribute to a successful evolution. But none of those endeavours will be enjoyable if you’re not feeling well. So, having a retirement plan that’s built to accommodate any health care and comfort measures you may need down the road can reduce stress.

Consideration of appropriate legal documentation, including your will, Power of Attorney and Personal Directive for Health Care, is essential to protect you in the event of an unfortunate change in circumstances. It’s wise to work with a coordinated team of professionals who know your big picture and can ensure your wishes are articulated, documented—and honoured.

This article originally appeared in Enriched Thinking.