In sickness and in health

November 05, 2012

A good retirement plan may help a retiree through the unexpected costs of catastrophic illness

Health care expenses can be unpredictable — you never know when an illness may occur, how long you will take to recover, and what costs will be incurred.

The financial impact of a serious health change may be devastating

An unexpected or extended illness could take a big bite out of  savings you worked so hard to accumulate. And with inflation eating away at a fixed retirement income, it’s important to be prepared for the unexpected.

Having a good understanding of how much money you’ll need for healthcare costs during retirement is an important part of successful retirement planning.

In 1971, seniors (those aged 65 and over) represented 8% of the population. Last year, as the first wave of baby boomers reached the senior milestone, that segment increased to 14.8%, according to Statistics Canada 2011 census data. In fact, Canada now has a record number of seniors, with almost 5 million seniors in a population of 33.5 million. The fastest growing age group is 60-64 year olds, which increased 29% from 2006. The second fastest growing age group is centenarians, those people over 100.

In addition to setting a new precedent in age expectancy, baby boomers have just experienced the most unsettling financial times since the Depression. Not only have they seen their stock market savings plunge, a low-interest rate environment is making it difficult for them to grow their investments.

Only half of Canadian boomers aged 45 to 64 have a regular savings program in place, says a recent CIBC study conducted by Harris/Decima. And one in three retirees (31%)  aged 55 to 70 are spending more in retirement than expected, says research from TD Waterhouse. As a result, the percentage of Canadians over the age of 55 and still in the work force is the highest it’s been in 40 years.

It is important to position your portfolio and utilize strategies to ensure your income can support you over your lifetime. That’s why it is important to invest in good quality, dividend-paying stocks with a history of increasing dividends. By reinvesting those dividends and taking advantage of the power of compounding returns, you have access to a constant, reliable stream of income from your portfolio. And that income can go a long way to supporting your future retirement lifestyle—whether in sickness or in health.