Planning for healthcare costs in retirement
More than half of Canadians are worried about the healthcare costs in retirement, according to a national study conducted by Ipsos Reid this summer. The Sun Life Canadian Health Index found that just about one-third of adults are saving for the possibility that they’ll face a health emergency. This despite the fact that 46% believe a major health issue would have “a big, perhaps permanent impact” on their personal finances.
Planning for health costs in retirement can be difficult for a couple of reasons. First, there is confusion about what is and isn’t covered by the public healthcare system. Second, the immediate financial needs many of us face – paying down mortgage and consumer debt, saving for our children’s education, etc. – make it tough to add health costs to our retirement plans.
Tim Landry is director, living benefits at All Financial Services in Montreal. A 44-year industry veteran, Landry is an outspoken proponent of the need to plan for health expenses. He says the most common misperception Canadians have about the publicly funded healthcare system is that “government will look after me.”
Will the government look after me?
Landry explains that the public healthcare system is designed to provide curative, rather than maintenance care. In other words, a hospital stay or a trip to the doctor to cure you of a disease is covered. Services designed to maintain health are covered to a far lesser extent. Think long-term care facilities, home-care services and drugs not listed on your provincial formulary. Many expect that this coverage will be reduced as Canada’s population ages.
“It was never part of the Canadian healthcare system to cover maintenance care,” says Landry. Some coverage is available, on a limited basis. “But for how long? I was born in 1945. We had 42 taxpayers per retiree. We’re about to hit two [taxpayers per retiree]. Let’s face facts. Once the boomers hit 75 and 80, and they start to need care, the numbers are going to skyrocket.”
Reevaluating your finances
The good news is that a lot of Canadians are thinking about this. Among respondents to the Sun Life Canadian Health Index survey who have had someone close to them experience a health issue, 29% say the experience has “caused them to reevaluate their finances.”
But when asked about what they believe will be their most important financial concern as they approach retirement, just 4% say the “ability to manage my health expenses.” Three times that amount cited the “ability to finance my personal interests.” In fact, more Canadians are thinking about being able to afford the home of their choice than they are the healthcare they will need.
As you get close to (or into) your retirement years, what do you believe will be (or is) your most important financial concern?
Source: Sun Life Canadian Health Index
Given that the study’s respondents say they expect to live, on average, past their 80th birthday, these priorities may well shift over time.
Don’t wait until you’re sick
The three key product solutions are critical illness insurance, long-term care insurance and disability insurance. “But not all three at once,” says Landry. That’s too expensive for most Canadians, in his opinion. (Full disclosure: I’m employed by a company that sells these products.)
Critical illness insurance pays out if you’re diagnosed with a serious health issue that’s covered by your policy (assuming your policy’s waiting period has passed). Long-term care insurance covers health expenses incurred over an extended period. It reimburses you for expenses, or provides an income benefit during the time you need care. Disability insurance pays you if you are younger than 65 and can’t work because of an injury or illness.
Landry doesn’t advise clients in their 20s to buy these products. But if you’re in your 40s, do some research. And don’t wait until you’re sick. “They have to consider it before they need it,” he says. “If they don’t, they won’t be able to get it.”
Additionally, the older you are, the more this insurance is likely to cost. “It all relates to how soon you are likely to need it,” he says. “If you’re talking to a 40-year-old, the likelihood of them needing it in the next 30 years is virtually nil. It can happen, because of an accident or stroke. But it’s very limited. Whereas if you’re talking to a 65-year-old, the likelihood of them needing it in the next 10 years is fairly high.”