Health Insurance and Planning for Retirement

October 20th, 2011 | Author: Mitch Reynolds

Focus on Health Insurance #3: Planning for Retirement

Health insurance planning for older Canadian workers planning their retirement

Health insurance for retirement planning This health insurance article is dedicate to those Canadians in their 40s and 50s looking towards retirement planning but still sandwiched between teenagers or early adult children and aging parents. This can be a very difficult time for many pre-retirees looking at their retirement nest egg and trying to plan for long-term success in their later years.

This article will look at some of the pressures on Canadians trying to plan for retirement. One of the main risks is their health. As we age we all know things are more likely to go wrong with us. The chances of cancer, heart disease, stroke, or long-term injury increase dramatically. The real risk is if something serious happened to you while you were still in the planning and accumulation phase of your life. Left with not enough in the bank (yet) and financial pressures all around, how would your retirement plan hold up? Would it survive even if you did?

Older children are still financially dependent and aging parents become a burden

For many of us in mid-life, we are trying to juggle many balls and put our retirement planning on the right foot. The good news is that very often our major debts have been paid off or seriously paid down. The cars might no longer have a loan on them and the mortgage could be gone, or getting close to being paid off. The financial pressures don’t go away, I’m sorry to report, they just migrate to new places.

Your children, now teenagers or in their early twenties, are probably looking at some form of post secondary education. They are likely to ask Mom and Dad for financial support to pay the cost of education. Even when they finish school there are many other costs that seem to spring up on parents:

Helping young adult children with purchasing a new car for their first job
Paying for their marriage.
Helping out with a down payment on their first home.

These are all things that parents with means can and would do to help out their children.

But that is not all. As your children age, so do your parents. We know that the vast majority of Canadians growing older today do not have adequate savings for their retirement plans. This means they certainly don’t have enough saved for private or semi-private health care as they age. Home care or going into a long-term care facility is very costly, and the government looks to the next of kin to pay the bill if the seniors can’t. As an adult child of aging parents, you are financially responsible to help them pay for care or become a care provider yourself. This too can add a great deal of stress on the family, both financially and emotionally.

Disability insurance does not cover healthcare costs

Most Canadians in this demographic are securely employed with either employee group benefits or personal insurance plans. These benefits cover life insurance and disability insurance fairly well. The problem is that disability insurance alone will not keep a retirement plan on track. Your disability insurance from work will usually pay out two thirds of your prior earnings, tax free. This will help you maintain lifestyle and pay for monthly expenses, but it won’t pay for things like:

high cost prescription drugs (i.e. new cancer medications)
home care and cleaning if you need help
extra meals out because no one is cooking
continued RRSP contributions

Disability insurance alone will maintain the current lifestyle, but won’t help with unexpected healthcare costs or protecting your retirement plan from collapse.

Chances of surviving a critical illness

The chances of surviving a critical illness are only increasing. The latest statistics I received from a Sun Life Financial health insurance specialist were that 92% of Canadians survive their first heart attack and 85% survive a stroke. Survival rates for all types of cancer have also been going up. This means it is much more likely that you will survive a life altering critical illness than pass away from it. So, if you survive, what happens to your financial plans and your retirement? The same financial pressures outline above haven’t gone away, and your disability insurance does not meet all your needs. There are a few ways to access extra cash when a critical illness strikes and you need money:

Remortgage the house – but who would lend a seriously ill person money?
Liquidate RRSPs – but then your retirement plans will never be reached.
Have a critical illness insurance policy that pays lump sum, tax free cash after diagnosis.

When looking at your options, the cost to benefit analysis of having a critical illness insurance policy is excellent. There is about a 35% chance that you will have one of the 24 covered critical illnesses or injuries before age 65. With this high probability, the cost of owning a critical illness insurance policy is very low for a tax free benefit of $50K, $100K or more. The other two options will be financially devastating to your future. Why take that risk?

Sun Life: Protect you Investments with Critical Illness Insurance

Sun Life: Protect your Savings with Critical Illness Insurance

Get Long Term Care Insurance in your 40s or 50s

Planning your retirement also means having a plan in place for your long term care. Half of all Canadians will require some form of long term care, either in their own home or in a facility. Serious long term care needs can last for years, where you need assistance with the basic activities of daily life, like dressing and feeding yourself, getting out of bed, and even going to the toilet. The cost of this kind of close personal care can be very expensive; often over $3,500 per month on top of your regular monthly expenses.

Planning for this kind of care means either having to beef up your nest egg to handle the cost of care, or owning a long term care insurance policy that will pay out tax free income to you when you are in need of care. For most middle aged Canadians saving for retirement, the cost of a long term care insurance plan would be 2-3% of their current retirement savings per year in order to protect those savings from being eaten away by long term care costs. Seems like a good plan – use a small amount of your savings in order to protect the entire nest egg.

Also, if you wait too long to buy long term care insurance the price really goes up. The best time to buy it would be in your 40s or 50s, as the price is very manageable. There are also 20 year payment options at these ages. Just think, at age 45 you could buy a long term care insurance plan and be done paying for it at 65, when you retire. No ongoing premiums into your retirement years.

Asset Protection with Sun Life Long Term Care Insurance

Protecting your nest egg against health risks

This whole article is about planning for health risks that can destroy your retirement plan. There are enough financial pressures from family, taxation, and trying to save for those later years. What you need to do now is put a health insurance plan in place to protect your retirement savings and boost your income when either a critical illness or long term care situation arises. Chances are you will face one or both of these situations in your life. Wouldn’t it be nice to have a life insurance company pay the bills instead of it coming out of your bank account?

Ask a Life Guard Insurance broker about your health insurance plan

At Life Guard Insurance we have qualified brokers across Canada who can help you plan for health insurance needs. Contact us today and we will match you up with an insurance broker who specializes in health insurance and retirement planning.

The article was written by +Mitch Reynolds. If you found this article interesting or it made you think, please feel free to share your comments below. Liking us on Facebook, giving us a +1 on Google or Tweeting this article about health insurance and retirement planning would be very much appreciated.