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Health issues often derail retirees’ financial plans, survey shows

As lifespans get longer, so does the potential for large health care bills.

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Nearly six of 10 older Canadians say they have experienced a "major life event" that disrupted the financial plans they had in place, according to a research report focusing on the financial well-being of older Canadians released Monday by the Ontario Securities Commission.

The report also found that as Canadians age, the financial implications of meeting their health-care needs grow in importance.

"The report provides insight into the issues and challenges faced by older Canadians, including how they are taken aback by changes that impact their financial plans," says Rhonda Goldberg, acting director of the Office of Investor Policy, Education and Outreach at the Ontario Securities Commission. "It highlights the need for investors entering retirement to expect the unexpected, as well as the need for retirement planning and retirement advice."

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A focus on senior investors

The report was developed as part of the OSC's commitment to be more responsive to senior investors – who form an increasingly large segment of the Canadian population, need to finance longer lives in retirement than previous generations and face investing choices that continue to grow in complexity.

The report, titled "Financial Life Stages of Older Canadians," is based on surveys completed by more than 1,500 Canadians over the age of 50. It found that most people in the over-50 age group are guided by informal financial plans that are built on approximate ideas of what respondents need for the future – but that these informal plans can be disrupted by unexpected events.

Health-care needs and costs can disrupt plans

For all older Canadians surveyed, the three most common events that forced changes to their plans were the need to provide financial support to an adult family member or relative who was experiencing financial difficulties, coping with significant medical expenses and suffering stock market losses that hadn't been recouped.

For respondents under age 75, the most common event to upset their financial plans was unexpected early retirement – often as a result of a health concern. For those over 75, major health problems were the most frequent reason their spending plans were derailed.

The research found that respondents said they learned to adjust to their plans in response to unexpected events and develop a lifestyle that reflects their income and interests, with the result that finances were not a major source of ongoing stress. Those surveyed said they had met unexpected financial challenges by cutting household spending, cashing in savings or borrowing money. For those still working, borrowing was most common, as well as stopping saving for retirement.

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Gaps in advice identified

The survey also asked whether respondents had sought or received professional financial advice in preparing for retirement, and what the gaps were between the advice they found useful and advice they actually received. Respondents said they needed, but mostly didn't receive professional advice in the areas of preparing for health challenges and planning to cope with surprise expenses.

Two-thirds of respondents said they would find advice on three main topics most useful: helping to figure out how much income they will need in the future, planning to ensure they don't outlive their money and learning to prepare for potential health challenges.

Lessons from experience

The researchers also asked respondents what financial advice they would pass on to those preparing for later stages of life. "Overall," the report notes, "the advice was simple and sensible." The advice included:

  • Start saving early and save regularly;
  • Live within your means – avoid debt;
  • Invest where it counts most – TFSAs and RRSPs;
  • Get advice – make a plan;
  • Learn about financial matters;
  • Be cautious about your buying.

Alexandra Macqueen, CFP, teaches and writes about finance in Toronto. She is co-author, with Moshe Milevsky, of Pensionize Your Nest Egg: How to use Product Allocation to Create a Guaranteed Income for Life.

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