Planning for healthcare costs in retirement
As you get closer to retirement, you will need to start focusing on getting yourself in a good financial position before your big retirement date comes. That includes getting all your ducks in order as it pertains to covering your healthcare costs in retirement.
The sooner you start putting your retirement budget together, the sooner you can start making final decisions about your personal finances. Of course, your health will continue becoming a more prevalent issue as you get older. The last thing you want to have happen is to incur health issues that hurt your financial situation. You don’t want that happening when your ability to recover financially is vastly limited because you are retired.
While hiring a financial advisor is a viable option if you can afford one, you could still benefit from having some basic knowledge of healthcare costs and insurance. You should be thinking now about how to manage your healthcare costs heading into retirement and while also preparing for your golden years.
Shifting Your Mindset
If you are like tens of millions of Canadians, you have been working for employers that took responsibility for making sure you had or have access to healthcare insurance coverage. Your job was or has been to simply choose to accept the coverage or not. Assuming you did accept the coverage, there is a good chance your knowledge about the healthcare insurance industry is limited.
It’s time to shift your mindset. The responsibility for making decisions about future healthcare costs and selecting the best possible health insurance at a price you can afford will soon fall into your lap. Are you ready?
Will Government Insurance Be Enough?
If you plan on putting full reliance on the healthcare insurance offered by the Quebec government, you owe it to yourself to fully understand the depth of that coverage. Remember, you are getting a little older every year. Your teeth might need work or replacing, and your eyes will likely go into a slow fade. Also, you might experience some loss of hearing. These are issues we must all face as we get older.
While government-sponsored health insurance varies a bit from province to province, it’s very likely you will get nothing more than basic coverage as a retiree. That probably won’t cover maintenance issues that include dental services, optometry, and hearing aids. If you expect to incur costs in these areas and believe you can afford to cover them on your own, that’s fine. You can put those numbers in your budget. If you can’t squeeze these kinds of costs into your budget, a good financial advisor would tell you that you might need more or different insurance coverage.
Considering Risk/Reward Theory
As we get older, insurance companies look at us as higher risks, rightly so. That is why we can expect our health insurance costs to continue to rise as we age. For you, affordability is the first thing you need to consider if you want more than the basic coverage afforded you by a public healthcare option.
If you have trouble dealing with the affordability issue, it might help for you to use risk/reward theory. If you purchase a good health insurance policy and don’t ever need the extras you would be paying to get, it might have been a bad decision from a financial perspective. Conversely, not purchasing a good health insurance policy would put you financially at risk if a major medical issue occurred that wasn’t covered by the government policy.
As you can see, there are always risks involved when you make financial decisions. In the case of buying health insurance, the rewards would come from choosing the option that costs you the least amount at the end of the road.
Budgeting for Healthcare Costs in Retirement
As a rule of thumb, financial experts generally, believe you should allocate about 15% of your retirement income budget for healthcare costs. For Canadians, that should include prescription medications, dental care, and trips to the doctor that aren’t covered by the public insurance option.
Example: Let’s say your monthly budget in retirement will be $2,000. That means you should expect to incur or set aside $300 for healthcare issues. As a fiscally responsible individual, you should set aside that much in a health savings account or envelop whether you need it or not. Why? The $300 in an average monthly cost expectation. Most likely, your expenditures will be a little more sporadic.
Purchase Health Insurance or Not?
Once you know what your budget is going to be for healthcare costs, you can then decide about purchasing a premium insurance policy such as critical illness insurance, dental insurance, and long-term care insurance. To do this, you would want to consider whether you want to risk having to pay major medical costs later or start paying insurance premiums now and avoid the big costs later.
In summary, now is the time to start planning for retirement and how you intend on managing your healthcare costs in retirement. If you are a person of means, you would probably be better off sticking with the public option and just setting aside extra money for what your government policy won’t cover. If you have limited resources, you might want to protect what you do have by buying an extra healthcare insurance policy.
Assante Capital Management Ltd. is a Member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada. Insurance products and services are provided through Assante Estate and Insurance Services Inc.
This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see a professional advisor for individual financial advice based on your personal circumstances.