A decade ago, I wouldn't have advised to plan for 35 years in retirement — but things sure have changed.
According to the recent census, Canada could have more than 17,000 centenarians by 2031. That's a good reason to have a very detailed road map that outlines your plan and wishes for retirement, and how they will be financed.
The kicker is that health costs in retirement are hard to predict because we don't know what kind of care we'll need, how long we'll need it, or whether our partner will also need care.
Here's another thing to consider: The National Advisory Council on Aging says 80% of Canadians 65 and over have a chronic health condition. In short, we're going to live longer, and whether we want to admit it to our healthy selves now, our health will likely decline and we may need to face the fact of long-term care.Millions of Canadians in their prime working years are focused on wealth accumulation and tax optimization, but when planning your finances for your future you really need to consider wealth preservation.
So here's what you need to do to prepare and save as best you can for what is essentially an unknown future with unknown costs.
First, have a heart-to-heart talk with your partner and/or children about what arrangements would be made if you decided to stay at home until ‘the end,' or if you will move into a long-term care facility. If you have a family history of disease such as Alzheimer's or stroke, ensure that's factored into the discussion, as well as what to do in the event of mental illness or decline.
Women, like it or not, should pay particular attention, because illness, whether our own or our spouse's is likely to hit us harder. Women live longer than men and are usually responsible for caring for their spouse in old age. If you decide that you want to stay in your home until the end, will someone be around to help you — your kids, a neighbour, a friend Will your son or daughter (or another loved one) be able to visit weekly to help out, and more importantly, can they do it for the long-haul Is it an option to sell your home and live with one of your children
These are the types of questions that you need to answer honestly in order to plan accurately. The cost implications of extensive family support compared to no support at all are very different.
Next, take a look at your finances and ensure that your decisions are reflected. If you're going to stay at home, this means you won't be selling your home and using the proceeds to fund your retirement. Also consider that just because you're in your retirement years doesn't mean you don't need an emergency savings fund. Health or other significant expenses can arise at any time, so it's a good rule of thumb to have three to six months' worth of expenses set aside in easily accessible funds.
Third, in addition to your overall savings, consider solutions that can supplement your income in case of illness, such as critical illness or long-term care insurance. While critical illness insurance may be included in your employment package, long-term care insurance isn't well known and often something you would need to invest in on your own. It's not a lump-sum payment but an income stream to cover ongoing costs of nursing or personal care.
Lastly, if you haven't already done so, appoint a power of attorney for personal care so that someone close to you can make decisions on your behalf if you no longer can. You should also consider appointing a power of attorney for property to allow someone to manage your financial affairs in your best interest.
The recent census statistics on aging highlight a new financial reality: The main risk we'll face in retirement is longevity. The longer we live, the more money we need to survive, and that's only further complicated by health risks.
Retirement planning has never been more important, and tapping into all available resources: investments, family support and insurance can help you better manage the risk.