The job of retirement planning is getting harder.
High interest rates and inflation are draining money from retirement savings in some households, and longer life expectancies require people to save more or reduce retirement spending for retirees. Now comes another complication. we are living longer but not healthier.
Health problems can be managed so that you have a good quality of life, but the costs are potentially huge. Accounting for these costs is best done during retirement planning, as opposed to in your 80s or 90s, when your options are more limited. Before you retire, you should answer this question:
A new report by Bank of Nova Scotia economist Rebecca Young examines two ways to get this help: a long-term care facility or aging in place with home care. “Canadians have a vision of what long-term care might look like, and they’ve reported that their ideal scenario is to age in place,” Ms. Young said. “But they’re not really taking steps to make that possible.”
Canadian seniors have added 2.5 years to their life expectancy over the past 20 years, the report says. Although the rate of growth has slowed, we are still seeing an additional month of life expectancy each year.
This is largely a women’s problem. A 65-year-old man has added three years to his life expectancy over the past two decades, compared to two years for women. But a woman of that age will likely outlive a male by almost three years.
How long can Canadian women expect to live in retirement?
Canadians are living longer. we all understand that. My light bulb moment was when I spotted a section of 100th anniversary cards at a Hallmark store a few years ago. When I asked the financial planners in my LinkedIn community what lifespan they use for clients, the answers ranged from 90 to 100, with 95 being the most popular answer.
What is less understood about longer life spans is that some of our last years may be unhealthy ones. The life expectancy of an average 65-year-old person today is 21 years, of which only 15 are in full health.
Ms. Young’s study cites the Public Health Agency of Canada, which found that nearly three-quarters of people age 65 and older have at least one serious chronic disease, while one-third have multiple conditions. More than 80 percent of 85-year-olds suffer from hypertension, more than half from osteoarthritis, and a quarter from dementia.
The impact of these health conditions can be measured by your ability to perform six aspects of daily living: bathing, dressing, eating, toileting, continence, and walking or transferring from bed to wheelchair. If you need help, your options other than a spouse or family members are home care or a long-term care home, also known as a nursing home.
The report states that one in three people aged 85 and over live in a long-term care setting. But these facilities are seen by many as a second-best option because of waiting lists for space and because of concerns that have peaked during the pandemic about the quality of care. Cost can also be a barrier, although long-term care homes can cost much less than nursing homes.
A long-term long-term care plan
People usually say home care is their preferred option, but Ms Young says the cost is vastly underestimated. Five hours of light home care per week may be covered by provincial governments, while 22 hours per week may cost $3,500 per month. According to the Canadian Medical Association, 22 hours of home care per week is consistent with keeping people at home rather than in a long-term care home. The price for continued home care can be around $30,000 per month.
If you don’t have the savings to cover the cost of care, your options include downsizing your home to lose equity, or borrowing against the value of your home using a home equity line of credit or reverse mortgage. Long-term care insurance purchased before retirement is another option, but this type of coverage hasn’t caught on.
Ms Young’s report recommends changes to our pension system to help people save more money and help groups such as lifetime renters and singles, a group that is disproportionately female in retirement.
For individuals, he said, the best approach is to work with a financial planner before retirement to figure out how to cover care costs. “If you want to preserve the aging option, start planning now.”
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