Clients who risk outliving their retirement savings have several options to protect themselves
As the risk of Canadians outliving their retirement savings continues to rise, the different options and strategies to protect themselves are becoming increasingly important — especially for one crucial life expense.
According to a recent report by Global News, a majority of Canadians may need long-term care (LTC) down the line. Recent figures from the CD Howe Institute suggest that more than half of today’s 65-year-olds will live past 85, and more than two-thirds of those who do will have a disability. And according to Sun Life Financial Canada, the average 50-year-old couple faces a 92% chance of at least one spouse or partner eventually needing LTC.
LTC expenses, which are not covered by the Canada Health Act, are also steep. The Canadian Life and Health Insurers Association (CLHIA) says living costs in a Canadian LTC facility range from $900 to $5,000 monthly, while in-home care costs vary from $12 to $90 an hour. Assuming one needs eight hours of in-home care a day, it would add up to $75,500 per year on average, said Sun Life.
That means a significant number of Canadians risk losing some or all of their retirement savings just to LTC expenses. To offset that risk, some may put off collecting their CPP and OAS benefits to get a bigger monthly payout.
Others may consider getting LTC insurance, which the CLHIA says can be divided into two main types. “One covers the cost of certain expenses, like private nursing care, up to a pre-established ceiling. The other provides a pre-determined level of weekly or monthly income that you can use as you see fit, if and when you become unable to look after yourself,” said Global News.
But according to Sun Life Financial advisor Brian Burlacoff, people who want to avoid steep premiums should ideally purchase LTC insurance their early 50s, though at that age they’re probably still paying for their children’s university tuition or their mortgage.
Clay Gillespie, financial advisor and managing director at RGF Integrated Wealth Management, noted that few people who are set to retire in 10 to 15 years are ready to talk about LTC insurance. However, he added, certain policies offering classic disability insurance can be converted into LTC coverage later on.
Another option is to use at least part of one’s RRSP to buy an annuity at the end of the year they turn 71. Those who choose to get an annuity (as opposed to converting their RRSP into an RRIF) will get guaranteed monthly income for life, but it’s an unpopular option: retirees want control of their money, and annuity payments can be inadequate since they’ve been tied to historically low interest rates and do not always rise with inflation.
But according to Gillespire, annuities are a better deal for people in their mid- to late 70s. “That’s because annuity payments increase with the death rate, as the financial institution has a bigger pool of money to distribute among fewer people,” reported Global News.
