Wednesday, 18 May 2011

Managing Financial Effects of Health in Retirement: 1) What can happen and what are the odds?

"Odds are you don't know what the odds are."
Gary Belsky and Thomas Gilovich, Why Smart People Make Big Money Mistakes

Health is a big concern to most people as they get older. The image of a decrepit, half-deaf, frail, confused person immobile in a wheel chair haunts us all. Such a prospect is scary, not only for the feeling that life will be joyless and empty but also for the financial implications. Will costs of care bankrupt us? Will we become a resented burden on family? Are financial products that can provide protection like critical illness insurance and long term care (LTC) insurance necessary or worth the cost? How should we go about deciding whether to buy them and what are the alternatives?

Most Seniors Will be Healthy During Old Age and Never Need Long Term Care
This is the encouraging news. People do not get to 65 or whatever retirement age and suddenly become wheelchair cases unable to take care of themselves. In fact, the 2011 OECD report Help Wanted? Providing and Paying for Long-Term Care contains a chart showing that only 2% of the Canadian population as of 2007 was receiving LTC. Most of them are women over 80.

In another study (in the Eight Conference on Health Survey Research Methods), Michael Wolfson and Geoff Rowe of Statistics Canada projected levels of disability in Canada for the year 2021. In the chart below, presented by Wolfson using that data in Projecting the Adequacy of Canadians' Retirement Incomes, the predominant light grey area in the centre is the population with no disability at all and the next area outwards from the middle are those with mild disability, moving through ever darker bands of moderate to severe disability to institutionalized. Note that at every age group moving upwards the vast majority of men and women will be generally healthy and able to enjoy life, even for people in their 80s and 90s. Even in the 90+ age group, only 43% are likely, according to this projection, find themselves moderately or worse disabled.

There is a very gradual increase in the amount of disability with age, but no sudden abyss of decrepitude. There is an increase nevertheless.

The Big 4 Old Age Health Problems
The things that will hurt most, both physically and financially, are:
  • Cancer – the biggie at 65, around double the rate of any other problem, hits 8.5% of women, 14.2% of men age 65

  • Heart attack and Bypass surgery – affects men more than twice as much as women

  • Stroke – tends to have long term consequences since 75% survive a first stroke and 60% are left with a disability according to citing the Heart and Stroke Foundation

  • Dementia (including Alzheimer's) – much more a woman's disease, it is already significant at 65, rises with age and really spikes upwards in older age, affecting 35% of those over 85. With people living longer and medical advances controlling chronic diseases better, dementia will become an ever greater issue for the Baby Boom generation. The 2010 report commissioned by the Alzheimer Society, Rising Tide: The Impact of Dementia in Canada, projects that the number of people living with dementia will rise from 1.5% of the population in 2008 to 2.8% in 2038. Of course, almost all of that increase will be amongst older people. The following graph from the report shows the huge spike upwards from age 80 that is expected to occur.

The next post will mention a few of the actions we can all take to reduce those odds to live healthier longer. After that, it's on to the the financial consequences of ill health during retirement and then the options for dealing with the financial risk, like various forms of insurance and whether they are worth it. Meantime, where the heck is the darn dental floss?

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