The COVID-19 pandemic is spurring many Canadians approaching retirement to consider their health care needs in the coming years.
A survey of Canadians over 45 years of age found that less than 60 per cent of pre-retirees with a written financial plan in place have included a budget for health care costs in their retirement plans, according to the 2021 Fidelity Retirement Report.
However, as only 25 per cent of pre-retirees had a written financial plan in place to begin with, just 37 per cent of all survey participants have some type of health care plan at all. That means there’s a great opportunity for advisors to help clients and prospective clients establish these plans.
Jamie Keenan, wealth advisor and portfolio manager at BMO Nesbitt Burns Inc. in Toronto, says the issue of health care, specifically, is more top of mind for her clients than it was three years ago.
She adds those conversations about health care conversations have become more open and less awkward since the beginning of the pandemic.
Faisal Karmali, portfolio manager and investment advisor with the Popowich Karmali Advisory Group at CIBC Wood Gundy in Calgary, says the pandemic has made Canadians realize the good and bad things that happen in long-term-care facilities.
The problem is getting younger clients to picture what their health care needs will be before they reach that stage of their lives, he says.
“It’s our duty to let them know there are the different phases you’re going to go through,” Mr. Karmali says. “Let’s start planning now because you have more time, fewer [health care-related] costs and issues, and more flexibility to do what you need to get done.”
Working with clients on a written plan and keeping that plan up to date is crucial, these advisors say.
To do that, Kimberley Jensen, advisor at Victorious Financial Services Inc. at Sun Life Financial Investment Services (Canada) Inc. in Carman, Man., says advisors should walk through with clients what they have in the way of assets, what the government is going to provide in terms of health and continuing care support, and determine how the gaps are going to be addressed.
Government health care programs may be income-tested, she adds, and government-funded facilities may not be what the client wants.
Furthermore, Mr. Karmali predicts that government resources for health care may be more limited in the future given the recent experience of the pandemic.
“The responsibility to the individual is going to increase versus it being government-focused,” he says. “If that’s true, it’s going to be very important advisors get on board and understand what those health care costs are [going to be] because they can really impact their client’s retirement.”
Mr. Karmali adds advisors must also be able to provide information to clients who live in one province but plan to retire in another as the provinces have different health care programs.
The costs of staying at home
Shocking reports of conditions in long-term-care facilities during the pandemic have prompted clients to plan to stay in their homes as they age. However, they may not be aware of the costs associated with that strategy.
“If you want to stay in your home, the cost of having medical care in your home 24/7 can be upward of $25,000 a month,” Ms. Keenan says.
There are costs associated with refitting a home for declining mobility and outsourcing home maintenance and household duties as the homeowners’ health declines.
Mr. Karmali says his team forecasts those expenses in advance when drawing up a plan.
“The biggest problem Canadians have is that one person ends up in a long-term-care facility and their partner ends up at home,” he says. “Now, you’ve got two homes to [pay for] – how are you going to do that?”
To plan accordingly, Mr. Karmali says his team incorporates a separate “health bucket” in retirement plans.
“As you explore the cost structure of what you need, you have to decide what asset to put in that bucket. It can be insurance … or it can be other assets within your wealth portfolio,” he says.
The question of whether to rely on various types of insurance, such as extended health, critical illness, or long-term-care insurance depends on each client’s needs.
“It may not be the best decision to get a certain type of insurance for a certain type of benefit because it’s way too expensive,” he says. “Others will find they want that protection just in case.”
Employer coverage, emergency funds, and powers of attorney
For pre-retirees with employer health insurance coverage, the discussion should begin early on whether and how to extend coverage into their retirement years, Ms. Jensen says.
“What do their employer benefits cover and is there value in topping it up on the personal side and being able to own it starting sooner than retirement?” she says.
It’s overwhelming to make many decisions when the retirement date arrives. Prior discussions and a written plan are crucial, she says.
For example, a health plan with a travel insurance component for those who plan to travel in retirement can also save the hassle of having to qualify each year as the retiree ages, Ms. Jensen adds.
Another consideration pre-retirees should keep in mind is having a line of credit attached to their home as an emergency fund, which can help with unexpected costs if a health care crisis occurs.
“Having that conversation with a bank while you still have cash flow is a much easier conversation,” Ms. Keenan says.
She also urges clients to incorporate health care considerations into their estate planning.
“We talk about estate planning as it relates to wills. We should be talking about it as it relates to powers of attorney because they come into effect while clients are still alive,” she says.
It’s important to keep the power of attorney up to date, she stresses, so if something catastrophic happens, that person is readily available to make decisions.
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