It’s a well-known fact – people are living longer. Despite all the talk about cancer, obesity, heart failure and eating bacon, science and medical advancements have increased life expectancy in the developed world drastically over the past two decades. Unfortunately, this can also be viewed as a double-edged sword. Living longer costs more and the likelihood of a costly health event also increases.
About two thirds of Canadians cite health as their biggest concern as they age, but only about 22% have planned or saved for a medical issue. Over the past year, I have had to deal with an ailing shoulder and a broken ankle. Normal wear and tear, but soon I will have to realize that I’m not 15 anymore.
In Canada, we are fortunate with our healthcare but it does cost us; all of us. A typical Canadian family (married couple with two children) will pay approximately $12,000 for public healthcare this year; an increase of more than 50% over the past 10 years. Between 2004 and 2014, the cost of healthcare insurance for the average Canadian family increased by 53.3%, dwarfing increases in income (34.7%), shelter (40.7%), clothing (33.4%) and food (15.6%). Pharmaceutical medications for the elderly are covered by public funds in some provinces, or paid for through employment-based private insurance or out-of-pocket. More than 60% of prescription medications are paid for privately in Canada. Long-term care in Canada is also an out-of-pocket expense. Residents are expected to pay a portion of their “room and board.” *
So how are you going to incorporate healthcare costs into your retirement plan? As with any plan, the sooner you begin to prepare for these costs in retirement, the more options you’ll have at your disposal. Here are a few precautionary measures you can take now:
1. Estimate what your expected annual retirement costs will be, taking inflation into account. Find out from your employer what options you may have for retiree health/dental benefits.
2. Consider what options you have to fund those long-term health costs (larger nest egg, using insurance, downsizing etc.).
3. Incorporate your estimated healthcare expenses into your retirement plan.
4. Live better. Society has a responsibility to encourage a healthy lifestyle in everyone, and to help mitigate health risks (e.g., unbalanced diet, lack of exercise and sleep, and stress). We have a responsibility to understand the value of the health services we receive and it’s up to us to make informed decisions.
No matter how you choose to tackle this issue, putting your head in the sand and ignoring it is not an option. Like it or not; it’s coming. Incorporating your long-term healthcare needs into your retirement plan is easier than you think. Why not start now?
* Fraser Institute. (2015, August). The price of public healthcare insurance [PDF]. Retrieved https://www.fraserinstitute.org/sites/default/files/price-of-public-health-care-insurance-2015-rev.pdf
Terry Willis, T.E. Wealth
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