Plan for health-care expenses

BY: ANDREW STEWART

I would describe myself as an optimist. I think this personality trait can serve people well in many areas of their life. But be careful not to be too optimistic when it comes to your retirement. A certain amount of pessimism is prudent to ensure that you have sufficient resources in your old age, especially given the risk of health problems later in life. The best time to start discussing potential medical costs in retirement is when you are in your 40s or 50s. Rising health-care costs can put a huge dent in the savings of your retirement. Although Canada’s publicly funded (and provincially administered) universal health-care system, covers most medical expenses, some services such as dental care and physiotherapy, must be covered by private insurance.

My parents are both in relatively good health and they are in their 80’s. While I like to think that I will have the same good health gene and be able to live in my own home for the rest of life, there is a chance that I will need additional care. There are essentially three ways to pay the costs that the government won’t cover:

• Rely on your family for help
• Save a large enough nest egg so you can pay for it yourself
• Or purchase health and long-term care insurance

Most people head into retirement without much thought about health-care costs that could derail their planned lifestyle. We tend to sideline thinking about medical expenses during retirement for two main reasons. First, we assume that medicare will take care of all their health-care needs. Thus, we simply may become accustomed to not having to pay for visits to doctors or hospitals. Second, while we are still employed, group insurance plans typically cover all or much of the health-care services not covered by public provincial plans. In Ontario, residents who are over age 65 qualify for the Ontario Drug Benefit Program, which covers most of the costs of prescription drugs, but may be subject to deductibles.

Assisted-living care, medical and pharmaceutical expenses during retirement are the top three concerns that most people face in retirement. So. should you buy protection like long-term care insurance?

Long-term care insurance is much less common here in Canada than in the US and it can be expensive. Long-term care insurance protects a person’s financial resources if something happens to their health in retirement. The policy would cover things like in-home care to help you dress and eat, or help provide care in a facility, such as a nursing home. The way I like to describe it to my clients as dignity insurance. If you don’t wish for your children or spouse to have help with the task of daily living, then you may want to consider this type of coverage.

Deciding whether or not to pay for the protection that comes with long-term care insurance isn’t easy either. Factors like how much are you saving now, and can you continue to save for retirement as well as pay the insurance premiums? Will you have family members nearby who could take some responsibility for you, or will you be relying on others if you need additional support. I came across an article that mentioned The Council on Aging, an Ottawa-based non-profit who published a Guide to Long-Term Care that can help pre-retirees decide whether insurance is a good idea for them. One of the issues with LTC insurance is that the premiums can increase at any time, by any amount. So how much does long-term care really cost? Having more hands-on care and medical attention staying at a long-term care facility, a place that offers seniors 24-hour nursing and personal care is not free. An estimated cost in Ontario with the average length of stay being 18 months will be $31,947 for standard care, $38,517 for semi-private and $45,634 for private. These are lump sum figures but could be paid monthly as well.