$1,500 - $5,000
national average for assisted living in Canada: Ontario = highest and Quebec = lowest.189% of Canadian seniors
have 1 chronic condition.271% of Canadian seniors
will require continued care by 2026.3$900 – over $5,000/month
is the average cost of long-term care facilities.43.3 million people
in 2046 could need support compared to 2.4 million in 2026.5
These statistics paint a clear picture about the current health and healthcare cost realities for Canadians and the challenges many will be facing in the coming years. But while these numbers are both eye-opening and staggering, it’s an area the majority of individuals haven’t financially prepared or planned for. With the life expectancy of Canadians increasing from an average of 75 in 1980 to 81.7 in 2014, and the Baby Boomer generation staged to represent one in four of the Canadian population by 2036,6 the trends in rising costs of both private and public healthcare will only likely continue in that upward pattern. This makes having adequate plans in place more important now than ever before.
Looking back and looking ahead
From both a public and private standpoint, the Canadian healthcare system has experienced significant change in recent decades, and it’s anticipated that even greater changes and pressures will surface as the Baby Boomer generation shifts into their senior years, along with other factors such as a rise in chronic conditions among all age groups, increasing physician fees and population growth as a whole. For some individuals, part of the conceptual challenge in recognizing the rising costs associated with healthcare stems from a misunderstanding about the healthcare system as a whole and the separation of public and private. Currently, approximately 70 percent of healthcare costs are funded by the government,7 which for some may create a view that Canadian healthcare is “free” to a certain degree. The danger in this, however, is that while some services are publicly funded, individuals do pay for it via taxes, and what this currently breaks down to is approximately $4,222 each year for the average individual, according to 2015 data.8
Of even greater concern for adults and older adults, however, are the costs outside of that 70 percent, as the services typically required by the senior population, such as home care, prescriptions, medical equipment, assisted living and long-term care are often out-of-pocket costs. “Two of the main aspects individuals will want to develop a better understanding and awareness of are the private costs of living longer, as well as how those costs may shift due to increased pressure on the system as a whole,” notes Leanne Kaufman, Head of Royal Trust at RBC Wealth Management Canada. “Canadians historically may have thought they understood what they’d need to live on for retirement, but the fact is that private care — even in our current public healthcare system — is extraordinarily expensive.”
In a report from Statistics Canada, it was found that the out-of-pocket costs of prescription drugs, dental care, and insurance premiums rose 2.9 percent annually from 1998 to 2009 and have only continued to increase from there, and prescription drugs alone account for 27.3 percent of out-of-pocket healthcare spending in senior households.9 When looking at the entire scope of senior care, however, these represent only a small portion of private costs when you factor in the vast range of senior services required by many Canadians, including home care, assisted living and long-term care.
Retirement planning and potential healthcare needs
Among Canadians looking ahead and planning for retirement, two key areas that tend to matter most are having enough money to retire and having the resources to live in the manner they want to. At the highest level, these are very important considerations that help direct the planning process; more specifically, both should factor in the potential healthcare needs and the associated costs. “Key here is having an awareness as to the services the public system offers, and then from a private or personal perspective, identifying the types and levels of care you want, should the unexpected happen, and turning your mind to how much you’re going to need on a very conservative basis,” explains Kaufman.
While the thought of getting older and experiencing a decline in health is understandably not an easy one to face, the costs of avoiding the topic — both from a financial and emotional well-being standpoint — are far too great to overlook potential health needs in the overall plan. For the majority of Canadians over 55 (85 percent according to a report by the Canadian Housing and Mortgage Corporation), there’s a strong feeling of wanting to stay in their homes for as long as possible into their senior years.10 While this is an understandable choice from a comfort perspective, there are potentially significant costs there as well, such as mobility equipment, accessibility modifications or renovations, and in-home care. “Education is so important, from understanding what those costs are in today’s world to what they may potentially be 10 or 20 years down the road when individuals need them,” Kaufman emphasizes. And given that the likelihood of needing long-term care increases as individuals advance through their senior years, education around the specific costs and options becomes even more imperative. This currently doesn’t seem to be the case, however, as three-quarters of Canadians admit they have no financial plan to pay for long-term care if they need it.11
Key planning considerations
Potential healthcare needs are something that should be looked at both from a retirement-planning and an estate-planning perspective. “The important conversations need to happen at two levels: with professional wealth advisors to ensure there is enough income available in the future to fund those unexpected costs, and with professional estate planners for individuals who may be considering transferring or gifting some of their wealth to children or grandchildren during their lifetimes,” notes Kaufman. Specifically in regards to estate planning, the rising costs of healthcare create a large reason to pause and consider whether passing down wealth during an individual’s lifetime is the best decision, without knowing how much will ultimately be needed. “With potential health factors to consider and the associated costs, it’s crucial for individuals to pay close attention to their estate planning, part of which may include considerations around retaining as much of their nest egg as possible, and not getting too proactive with giving away too much too soon,” Kaufman stresses.
Another crucial aspect to consider is Power of Attorney (in Quebec, it is referred to as a “Protection Mandate”), of which there are two forms: property (which includes property, finances, assets and investments) and personal/health care. The decision process for selecting a Power of Attorney on both fronts is one that should be given very careful consideration. While a family member or close friend may seem like a logical decision, it’s important to strongly consider family dynamics and the potential stresses and emotional burdens this may create. Depending on circumstances, a neutral third party may be an ideal option in regards to a Power of Attorney for property, and this is an area where RBC Royal Trust provides expertise and guidance, with professionals who are well-versed and experienced from both a technical and an emotional perspective. “Our services come into play when individuals lose the capacity to manage their own finances. We step in as the fiduciary to oversee not only the portfolio of investments, but also to plan for future expenses. We work with professional wealth advisors, and it’s part of our duty to understand what today’s costs are and to anticipate future costs in determining how the funds are best utilized to meet the interests of the individual,” explains Kaufman.
RBC Royal Trust also offers Power of Attorney administration services to assist individuals who have been named Power of Attorney for property and provides expert support in navigating and handling the tremendous responsibilities that come with taking on the role. “When a family member is tasked with being a Power of Attorney from both a personal care and property standpoint, it’s a complicated undertaking and one that can become overwhelming. We have the infrastructure in place to take the administrative burden of the property off anyone who is in that situation,” Kaufman shares. For more information, please visit RBC Royal Trust.
Communication and the role of family members
When making decisions about future healthcare wishes and level of care preferences, and then putting the financial plans in place in order to fund those decisions, it’s imperative that everyone surrounding the individual knows what those plans are and what the individual would want from a care perspective. Key conversations to be had include preferences in regards to home care versus a facility and the nature of a care facility. “If these conversations aren’t had, or don’t occur at the relevant time, that leaves the decision makers with a huge gap in understanding as to what the individual wants for themselves,” says Kaufman. Unfortunately, what that may often lead to is a type and level of care that isn’t aligned with personal wishes.
With a shifting population and growing healthcare needs as a whole, the Canadian healthcare system, both publicly and privately, will almost certainly experience significant change in the coming decades from both a cost and services standpoint. In preparation for both the current and anticipated costs, one of the most effective approaches individuals can take to generate peace of mind is thoroughly examining the costs and options in their province of residence and using that as a driving force to create appropriate plans. Doing so helps ensure a level of financial security no matter what unexpected health event or issue may happen down the road, which in turn allows the focus to remain on enjoying life to the fullest in the here and now.
Planning for the potential of long-term care
Given the fact that approximately half of Canadians will ultimately need some form of long-term care as they
progress through their senior years, a valuable option may be putting long-term care insurance in place as a way
to pay for these services, should they be needed. What this form of insurance does is generate a monthly income to
help with the cost of care, as well as allowing flexibility and choice around the kind of care an individual wants
to receive. Long-term care insurance helps provide individuals with the assurance that their lifestyle will be
maintained and their financial security protected if future medical problems necessitate the services of a
long-term care facility or professional services at home.
Note: To ensure that your own circumstances have been properly evaluated, when considering individual life and health insurance solutions, it is important to consult with a licensed insurance advisor to determine the best options for your individual needs.
In Quebec, financial planning services are provided by RBC Wealth Management Financial Services Inc. which is licensed as a financial services firm in that province. In the rest of Canada, financial planning services are available through RBC Dominion Securities Inc.