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rob carrick

We've living longer, but not healthier. Failing to recognize this could be a fatal error in your retirement planning.

A bunch of different approaches have been used to get Canadians to save more for retirement, none of them wildly successful. Let's try this: To cover your health care bills.

We have public health care in Canada, but it's a system that best suits the young and not the old. A stay in a long-term care facility to recover from a serious illness could cost you tens of thousands of dollars, and the same applies to in-home care.

Want a rough estimate of how much it will cost you for your routine health care in retirement? Between $1,500 and $3,000 a person annually, according to Ellen Whelan, an actuary and principal at Eckler Ltd. If you live 30 years after retirement, and that's certainly feasible, you might need as much as $90,000 on average.

A serious illness such as a stroke would cost you much more. Research commissioned by financial adviser Kurt Rosentreter found that nursing home accommodations in Ontario would run about $1,700 a month for a ward-style room with three or four beds; $2,000 for a semi-private room and close to $2,400 for a private room (financial assistance may be available). An estimate of monthly home care costs for someone with Parkinson's disease came to about $6,000 (read the research here) after government subsidies.

Ms. Whelan's perspective as a specialist in health issues is that living longer in no way suggests good health. "New drugs and medicine are keeping us functioning," she said.

Maybe you can cover your health care costs out of your general retirement savings, and maybe not. Unfortunately, one of the more widely used tools for helping people save enough for retirement is totally out of touch on health care.

The so-called replacement ratio never was all that comprehensible to the average person, anyway. It basically says that to retire comfortably, you should save enough so that you have an income in retirement of anywhere from 50 to 70 per cent or more of your preretirement income.

But as we start to understand the implications of living longer but not healthier lives, it becomes clear that the replacement ratio is a flawed measure, even if well understood. "I think, personally, that it's really poor," Ms. Whelan said.

Most of us spend little on health care in our younger years, especially if we have a benefits plan at work. There may be premiums to pay for participating in the plan, and some out of pocket expenditures as well. But the usual interactions with the medical system – doctor visits and straightforward hospital care – are fully or mostly covered.

Implicit in using the replacement ratio is the idea that you'll need less money in retirement than you do while in the work force. In many areas, that's true. Once retired, you no longer need to save for retirement. Also, with luck, your kids will have landed good jobs and no longer need your financial support.

Health becomes much more of an issue as you age, though. According to a 2012 study by Statistics Canada, almost one in 10 working age Canadians reported a disability that limited their daily activities, compared to one-third of people aged 65 and older.

Looking at one particular big company's post-retirement group health benefit plan, Ms. Whelan found that the average annual claims per retired employee ran between $1,500 and $3,000. Included here are glasses, dental visits, prescriptions and such.

Only a fortunate minority will benefit from these plans, though. Ms. Whelan says about half of employers in Canada offer some kind of a health benefits plan to retirees, but of those firms, only about half again continue to make this perk available to anyone but already retired workers. The rest will have to pay an increasing amount out of pocket.

Health care costs are subject not only to inflation, but also to the precarious financial situation in many provinces. Ms. Whelan believes we must prepare to spend more on our own health care as the provinces cope with the aging population's health care needs. "There's no other place to go," she said. "Either we'll pay more through taxes, or we'll pay out of pocket."

The insurance industry offers long-term care policies to help cover these costs, but this type of coverage is expensive. In fact, some big insurance companies have stopped selling long-term care policies because of soaring costs.

Most of us will pay our retirement health care costs out of our savings, then. However much you think you need for our senior years, pump it up.


The cost of health care in retirement

A 79-year-old man with Parkinson's disease wants to remain at home, but needs assistance. Here's an itemized list of estimated costs.



Estimated hourly costEstimated monthly cost
personal care35$25$3,792
meal prep14$23.95$1,453
skilled nursing3$49.60$645
laundry, home cleaning2.5$23.50$255
Total  $8,589

Source: The Realities of Old Age Healthcare Planning in Canada, by Kurt Rosentreter with Patrick Rankin


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