Illustration by The Globe and Mail
Q: Both of my parents lived into their 90s. It concerns me that I may need to stretch my retirement savings more than 25 years. Aside from accounting for more years of savings, should I be putting additional money aside for potential long-term care and other health care costs?
We asked Daryl Diamond, chief retirement income strategist with Dynamic, to answer this one.
That’s a great question and one many people share, Mr. Diamond said. “If we knew exactly how long we would live or how healthy we would be throughout retirement, planning would be so much easier. But unfortunately, we can’t predict the needs or the timing in advance.”
Reviewing your family medical history and the longevity of your parents is a very good starting point. Mr. Diamond also pointed out that your current health is another important factor to consider. While none of these provide guarantees about your own future, he suggested that they can offer helpful context when planning for a longer retirement.
How can we ensure our U.S.-based daughter is an equal executor with her siblings?
“Given the uncertainty, long-term care insurance is worth exploring, particularly in light of your parents’ health,” Mr. Diamond advised.
Long-term care insurance typically covers expenses that pertain to personal medical care, when a person is unable to take care of themselves. The insurance would come into play when at least two everyday tasks such as eating, bathing or getting dressed become untenable. Depending on the policy’s scope, it could cover in-home caregiving, assisted living, nursing or retirement home costs and some therapy or rehabilitation. It does not apply to situations covered by provincial health care. Rates increase with age, up to a maximum of about 80 in Canada.
In many cases, the cost of insurance premiums may be significantly less than the amount you would otherwise need to set aside to self-fund potential care needs. Insurance also addresses the timing risk: Coverage is in place immediately, whereas attempting to self-insure, where an individual manages their own strategy to put aside a reserve, does not guarantee you’ll have accumulated sufficient funds by the time care is needed.
I’m thinking of retiring and moving to the East Coast. What are the pros and cons?
Every province has its own long-term care fees. In Ontario, for example, long-term care accommodation can range anywhere from approximately $2,100 to $3,000 a month depending on the level of accommodation and care requested. Residents are also charged a co-payment fee toward their room and their meals.
In British Columbia, the costs are dependent on a person’s annual after-tax income. If it’s $19,500 or more, the government then calculates your after-tax income multiplied by 80 per cent and then divides that by 12, to ascertain your monthly costs.
It’s also important to recognize that many health-related expenses in retirement – anything from eye glasses to wheelchairs to long-term care – are not fully covered by government programs and must be paid out of pocket.
How can I protect my portfolio during a downturn a few years into my retirement?
“As retirees move through later stages of their retirement, spending often shifts away from discretionary items and toward medical and health-related costs,” Mr. Diamond said. While you can’t predict the exact timing of these expenses, the pattern itself is common among retirees.
Because of the unknown factors of health care needs and planning for inflation, Mr. Diamond recommended you work through these issues with an adviser, which can help you build a plan with flexibility.
“Having the ability to adapt, financially and strategically, as your needs evolve can make a meaningful difference in navigating health-related and longevity risks over the course of a long retirement.”
Do you want advice on a financial planning or retirement issue that’s affecting you? Send us an e-mail.
