The cost of keeping your independence in retirement could be $3,500 per month

The work of retirement planning keeps getting harder.

High interest rates and inflation are soaking up money for retirement saving in some households, and longer lifespans require people to save more or cut back on living expenses as a retiree. Now comes one more complication: We’re living longer, but not healthier.

Health issues can be managed so that you have a good quality of life, but the expense is potentially massive. Reckoning with this cost is best done in the retirement planning stage as opposed to your 80s or 90s, when your options are more limited. You need to answer this question before you retire: If I need extensive care in retirement, how will I afford it?

A new report by Bank of Nova Scotia economist Rebekah Young examines two paths for getting this help, a long-term care facility or aging in place with home care. “Canadians have a view on what long-term care can look like and they’ve expressed that their ideal scenario is to age in place,” Ms. Young said. “But they’re really not taking steps that would make that possible.”

Canadian seniors have gained 2.5 years of life expectancy in the past 20 years, the report says. While the pace of growth has slowed, we are still seeing an additional month of life expectancy with every passing year.

To large extent, this is an issue for women. A 65-year-old male gained three years of life expectancy over the past two decades, compared to two years for women. But a woman at that age is still likely to outlive a male counterpart by almost three years.

How long can Canadian women expect to live in retirement?

Canadians are living longer – we all get that. My light bulb moment was when I noticed a section of 100th birthday cards in a Hallmark store a few years back. When I asked financial planners in my LinkedIn community what life expectancy they use for clients, the answers were between 90 and 100, with 95 the most popular answer.

What’s less understood about longer lifespans is that some of our latter years could well be spent in poor health. Life expectancy for the average 65-year-old today is 21 years, with full health for just 15 of them.

Ms. Young’s study quotes a Public Health Agency of Canada finding that almost three-quarters of people aged 65 and up have at least one major chronic disease, while one-third have multiple conditions. More than 80 per cent of seniors at age 85 suffer from hypertension, over half from osteoarthritis and one-quarter from dementia.

The impact of these health conditions can be measured through your ability to perform six aspects of daily living – bathing, dressing, eating, toileting, continence and being able to walk or transfer yourself from a bed to a wheelchair. If you need help, your options beyond a spouse or family members are home care or a long-term care home, also known as a nursing home.

The report says one in three people aged 85 and up live in a long-term care setting. But these facilities are seen as a second-best option by many because there are waiting lists to find a spot, and because of concerns that peaked during the pandemic about the quality of care. Cost may be a barrier as well, although long-term care homes can cost much less than retirement homes.

A long-term plan for long-term care

People commonly say home care is their preferred alternative, but Ms. Young says the cost is significantly underestimated. Light home care of five hours per week might be covered by provincial governments, whereas 22 hours per week might cost $3,500 a month. According to the Canadian Medical Association, 22 hours of home care per week is consistent with keeping people at home rather than a long-term care home. For continuous home care, the price could be close to $30,000 per month.

If you don’t have the savings to cover care costs, your options include downsizing your home to pry loose some equity, or borrowing against your home value using a home equity line of credit or a reverse mortgage. Long-term care insurance bought before retirement is another possibility, but this type of coverage has not caught on.

Ms. Young’s report suggests changes in our retirement system to help people save more money, and to assist groups like lifelong renters and singles, a group that in retirement is disproportionately female.

For individuals, she said the best approach is to work with a financial planner well before retirement to figure out how to afford care costs. “If you want to preserve the option to age in place, start planning now.”

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