Illustration by The Globe and Mail
Q: I’m healthy and in my 50s. Do I really need to plan financially for a major illness? I also don’t have children to take care of me.
We asked Joshua Kalyta, financial planner with Sun Life and president of Kalyta Financial Solutions to answer this one.
Yes, says Mr. Kalyta, absolutely, planning is key. And you are not alone. According to Statistics Canada, 17 per cent of women aged 50 and older have no biological children; although the same data is not collected for men, it’s estimated that the percentage is on par or slightly higher than that of women in the same age cohort.
“Many people in their 50s are in their peak income years and may be carrying fewer expenses as mortgages are paid down or other financial obligations change,” Mr. Kalyta said. “At this point in the accumulation phase of their lives (preretirement), we often see the most disposable cash flow and a more aggressive savings strategy.”
With income peaking, and a greater focus on contributions, this phase can produce significant financial risk associated with setbacks, particularly those that prevent them from earning an income and investing their money, he added.
How should ‘longevity planning’ factor into my financial plan?
Beyond the risks associated with this accumulation phase, Mr. Kalyta recommended to also factor in potential health-care-related costs. “If a major illness is suffered, there is a strong possibility that your monthly costs will increase significantly while your ability to earn an income could be reduced or stop completely.” The question comes down to whether or not your financial plan can sustain this level of additional cash need.
When he speaks with his preretirement clients about risks such as this (even those with children), the goal is to understand what care could look like from a cost perspective, assuming a need to pay for it out of pocket. If a major illness would place significant strain on a financial plan, this is a risk you must plan for by looking at various options, such as critical illness insurance or self-insurance. Mr. Kalyta also suggested that a cost-benefit analysis can help determine which option is best for the individual.
“The risks will look very different based on each person’s specific financial position and financial objectives, which makes this even more important to consider each time a financial plan is drafted,” he said. Individuals who are heavily reliant on cash flow to sustain aggressive investing preretirement, he added, will be at significantly more risk than those in a financial position to retire or no longer requiring sizable contributions.
Ultimately, what’s important for you is gaining clarity when it comes to financial risk. “All financial plans should include a clear assessment of potential financial setbacks, like major illnesses, regardless of current health and other personal circumstances,” Mr. Kalyta said. “Importantly, even if a major illness did strike, an effective financial plan can help mitigate the most significant financial impacts.”
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