When it comes to saving for retirement, planning ahead for health-related expenses may be key to financial stability and success.
By 2030, it is predicted that close to one in four Canadians will be a senior,¹ and chronic conditions will be prevalent in more than 90% of the population over age 65. While we enjoy the privilege of a strong, publicly funded healthcare system here in Canada, longer life expectancies, the need for long-term care, and additional health-related costs can significantly impact your retirement savings and lifestyle.
Here are some tips on anticipating health-related expenses and ensuring 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.
Start with a strong foundation for your retirement plan
At its core, proper planning can ensure that your transition into retirement is a positive one without financial stress. Creating a Total Wealth 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 primary sources:
- Government benefits, including the Canada/Quebec Pension Plan and Old Age Security;
- Employer-sponsored pension plans, group RRSPs and/or stock option plans;
- Individual savings and investments, including RRSP/RRIFs, TFSAs, real estate, non-registered investments, and savings; and
- 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 impact your expenses. A Total Wealth Plan considers your vision of retirement, including health considerations and potential costs relating to health care.
Recognize the real impact on women
Women face unique challenges in our aging population. Female seniors require more resources over 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 decisions.³ 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’s disease,4 and Multiple Sclerosis is three times more common in women.5 Living with a critical illness can also result in higher healthcare costs.
Anticipate healthcare-related expenses
No matter your age or lifestyle, everyone has out-of-pocket healthcare expenses. Healthy lifestyles, age and genetics, can impact these costs, and these expenditures can become significant throughout a lifetime.
Assuming provincial health care plans will fully pay health-related costs, 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 the government will not reimburse certain drug costs. 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. Healthcare costs are predicted to double from 2011 by 2031,6 making it essential to contemplate their impact on your retirement plan.
Investigate insurance options early
Workplace health and dental coverage typically end at retirement. However, some retirees have ongoing coverage paid by their employer or the option of continuing coverage at their own expense.
It is important to understand the available coverage to make an informed decision on health insurance. Prescriptions, paramedical services, vision care, and dental care are often options, but there may be limits to annual or lifetime coverage. In addition, pre-existing conditions before purchasing the 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, the policy will pay a lump sum, tax-free benefit after a prescribed waiting period. 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 you’ve worked hard to achieve. Long-term care insurance provides a regular benefit that can be used to pay for the care required in your home or a care facility. A benefit would become payable when the insured cannot perform a certain number of activities of daily living (ADLs) outlined in the contract. This type of protection can ensure quality care without financial stress.
Explore tax credits and deductions
Tax credits and deductions are available for individuals with disabilities, their supporting family members and caregivers. The purpose of these credits and deductions is to provide some relief for healthcare 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.
Plan a successful retirement
When your transition to retirement is well planned out, it can be the most rewarding time of your life. Creating a new social network, maintaining physical activity, exploring creative discoveries and enrolling in ongoing learning all contribute to a successful evolution. But none of those endeavours will be enjoyable if you’re not feeling well. So, a retirement plan built to accommodate any healthcare and comfort measures you may need down the road can reduce stress.
Considering 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.
1 Seniors, Statistics Canada Publications 11-402-X https://www150.statcan.gc.ca/n1/pub/11-402-x/2011000/chap/seniors-aines/seniors-aines-eng.htm
2 Annual Report on State Public Health Canada 2010 Chapter 3 Chronic Conditions and Infectious Disease https://www.canada.ca/en/public-health/corporate/publications/chief-public-health-officer-reports-state-public-health-canada/annual-report-on-state-public-health-canada-2010/chapter-3.html
3 https://www.canada.ca/en/financial-consumer-agency/programs/financial-literacy.html
4 https://www.statnews.com/2019/07/16/new-clues-women-alzheimers-risk-differs-from-men
5 https://www.nationalmssociety.org/What-is-MS/Who-Gets-MS
6 Manuel, Douglas & Garner, Rochelle & Finès, Philippe & Bancej, Christina & Flanagan, William & Tu, Karen & Reimer, Kim & Chambers, Larry & Bernier, Julie. (2016) https://pubmed.ncbi.nlm.nih.gov/27822143/
source https://rosenbergdri.ca/anticipating-health-related-expenses-in-retirement-2/
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