Are you ready for healthcare costs in retirement?
Canada is often looked to as a country that’s getting things right when it comes to public healthcare. In many ways, we live up to that reputation. But it turns out that government funding for retirees isn’t quite as generous as the average Canadian believes. Because of this, many of them aren’t aware of – or prepared for – the out-of-pocket expenses they’ll incur in retirement. The good news is, you can do something about it before it’s too late.
There’s a growing trend with employers to axe retiree health benefits to their retired employees. This means most people will need to plan for healthcare expenses in their retirement well in advance of their final work date. But few people do.
A Leger Marketing survey conducted on behalf of the Canadian Life and Health
Insurance Association (CLHIA) says that 74 per cent of Canadians admit they have no financial plan to pay for long-term care when they get older. This is because many people assume that full-time care in a long-term care facility will be fully paid by government health care programs. But such programs may cover only a small portion – if anything at all – of nursing home or other specialized residential care facility costs.
Here are a few other expenses that are often overlooked when considering healthcare needs in retirement.
If you retire before age 65
While employed and under a company health benefit plan, the cost of your prescription drugs is partially, or fully, reimbursed and the cost to you is minimal. But if you retire before age 65 and need to purchase medication that’s not over-the- counter, you’ll have to pay for 100% of the cost of the prescription out of your own pocket.
Although you can claim these prescription costs as medical expenses on your tax return, you have to reach a certain threshold first and, even then, you’ll only receive a 15% tax credit.
Dental and other expenses
If you’re a resident of Ontario, you’ll qualify for the Ontario Drug Benefit program at age 65 and the majority of the cost of your prescriptions will be covered by the plan. However, if you need dental work after you turn 65 and don’t have private health insurance, you’ll only qualify for the Ontario Seniors Dental Care Program if you’re single with an income of $19,300 or less, or if you’re part of a couple with an income of less than $32,300.
Then, there are all of the other medical services that you may need to use in retirement that the government will not pay for such as physiotherapy, massage therapy or podiatry, to name a few.
Although we’re now living longer, we’re not necessarily living healthier as we age. This means that, at some point, we’ll need to avail ourselves of attendant care services either at home or in an assisted living facility. The government is not prepared to subsidize all of these costs, so if you want a certain level of care you’ll have to pay for it yourself.
According to the company LifestageCare, the cost of a long-term care facility in Canada ranges from $800 a month for a private room in New Brunswick to $8,000 for a month in a one- bedroom suite in Ontario. If you’re in need of private home care, the cost ranges from $3 an hour for in-home meal preparation in Quebec to $85 an hour for skilled nursing in Quebec.
Long Term Care insurance
In Ontario, there are currently just a few insurance companies that sell Long Term Care Insurance. And they have certain criteria that have to be met before they will pay out a claim. Most plans will not pay out unless two of the following activities cannot be performed without substantial help: bathing, dressing, transferring, maintaining continence and eating. Or, if you require substantial supervision because of cognitive impairment, they will also pay out a benefit.
However, as our population ages and more people put in claims for Long Term Care insurance, there’s a good chance that the insurance companies will increase their premiums or their exclusions, or they may decide that they cannot make a business case for this type of insurance anymore.
The majority of Ontarians do not own Long Term Care Insurance because they assume that if they ever need to move into an assisted living facility, they’ll be able to pay for the cost with the proceeds of the sale of their home. This can work for a single individual, but in the scenario where only one member of a couple must move to an assisted living facility this isn’t a perfect solution. The healthy spouse still needs somewhere to live, so this must be taken into account when planning for attendant care costs in the future.
As you review your expected expenses during retirement, keep in mind that healthcare costs could be a significant portion of them. To plan accordingly, you need to know what assistance will be available to you, and what you’ll need to cover on your own. You can find a list of the healthcare services that are covered by the government in each province and territory at the Special Benefits Services website. Also, learn more about how to budget for retirement at Canada.ca, or speak to a financial advisor who can help you create – and stick to – a sound retirement strategy.
Marcy Ages, VP and Certified Professional
Consultant on Aging
T.E. Wealth, Toronto
This article was published in Leon Frazer’s Strategies newsletter, Volume 1, Issue 1. Read the full edition here.