Planning for retirement? Expect the unexpected

New research sponsored by the Ontario Securities Commission (OSC) confirms a key retirement planning insight we’ve reported to you in the past. In a survey of Canadians age 50 or older, 58% said something outside their control affected their retirement plans.

“Our research found that a large number of older Canadians were caught off-guard by some major life event,” said Rhonda Goldberg, acting director, office of investor policy, education and outreach at the OSC in an email interview last week. “For example: taking care of an adult family member, dealing with a health issue or experiencing an unexpected loss of investments or income.”

The 2014 Sun Life Canadian Health Index produced a similar finding. Just 31% of retired Canadians told us that they had finished their career as expected. The other 69% saw their plans impacted by one of the following:

• 29% “retired for personal health or medical reasons (my own).”
• 15% “took an optional early retirement offer from my employer.”
• 10% were “forced to take retirement due to my employer.”
• 2% “retired for someone else’s personal health or medical reasons (to take care of them).”
• 14% “retired for some other reason.”

“It’s never too early to start planning for retirement. As part of this planning, people should talk to their financial advisor about how they can best prepare for unexpected events,” said Goldberg. “And since people’s personal situation and preferences can change over time, it’s also important for them to keep the lines of communication open with their advisor.”

The OSC study – conducted on its behalf by Brondesbury Group — identified a number of retirement planning concerns. From the report: “For those who are retired, healthcare costs present a significant risk to expenses, while investment earnings present a similar risk to income. For those who aren’t retired, the major risk to expenses is how long they will live. And for those who can’t afford retirement, the major risk to income is their success at staying employed until they believe they can afford to retire.”

For me, the personal health issue is most striking.

“Two-thirds of people age 75 and over reported having major medical problems,” reads the Brondesbury report. “Median out-of-pocket healthcare costs are $2,000 annually for those 75 and over, but one out of eight households spends over $5,000 per year. Healthcare expenses are a major focus of concern for people age 75+.”

This is one aspect of the retirement income system debate that I think deserves more attention. While it’s true that Canada compares well to other developed countries in terms of senior citizen poverty rates, it’s unclear to me that this will persist as health expenses rise. The baby boom generation is placing increasingly heavy demands on the healthcare system, and that’s only going to get worse.

Expect to see a gradual hike in out-of-pocket health expenses in the coming years. That’ll impact everyone’s retirement plans. For more information on how health expenses are funded across Canada, check out Who pays for healthcare?, a series of provincial guides.