Retirement planning introduces many difficult questions, and some very interesting and meaningful trade-offs. Including, how much should you sacrifice your high-quality go-go years in retirement to fund your expensive no-go years that might arrive in your 80’s and continue into your 90’s and perhaps beyond? For many, residence and healthcare costs can skyrocket late in life. It many not be a consideration for uber-wealthy retirees, but most of us will have to do some serious planning and reflection. There will be a trade off between funding the fun stuff, and paying for care in your very golden years.
As always the following is not advice. Consider this education and ideas for consideration as you build your retirement plan.
This Sunday Reads was inspired by this article (subscription required) in the Globe & Mail – The balancing act of preparing for emergencies in retirement.
The article starts with the topic of the unpreparedness of American retirees, but then moves north to the consideration of late-in-life healthcare and residence costs for Canadian retirees.
Planning for the big “what if’s” in retirement
From the article, insights from Adam Bornn of Parallel Wealth …
Many clients in their 50s and 60s hesitate to spend, worried they may eventually need long-term care,” said Adam Bornn, certified financial planner from Parallel Wealth based in Langley, B.C. “But we don’t want to throw away your good years of retirement for a very small ‘what if’ percentage of something happening down the road.
Adam also offered that in a perfect world, $150,000 to $200,000 in assets (in today’s dollars) should help buffer against late-life care costs.
On the Globe post I offered this comment …
It’s a difficult question with a difficult answer.
How much do we sacrifice our lifestyle in our retirement go-go years (60-75 as an example) to pay for care in our no-go years? … which can be described as a lower quality life stage for most.
Do we give up trips to Portugal in our 60’s so that we can afford $7,000-$10,000 a month for retirement home and PSW’s and nursing care in our late 80’s and 90’s and perhaps beyond?
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Or do we just punt, and say I’ll go to a government subsidized Long Term Care Home? They are good places for those who need that level of care. My Mom was admitted after a fall and needing a hip replacement. She’s happy and well taken care of. They are so nice to her. Costs are in the $3000 per month area as she has a private room. We will need to subsidize about $500 per month when she runs out of money.
The problem is that you need to be in crisis category to get in Long Term Care Homes, in many areas.
If you can afford it, plan to take care of yourself. Balance that against leaving a legacy, as well. And don’t gift yourself short. Ensure you have at least several thousand dollars of monthly income from age 90 to 100, perhaps? Do the math on filling the income gap after government benefits and pensions.
Fill the pensionable earnings gap
Do the income gap calculation and perhaps err on the side of caution, if possible. Know your projected pensionable earnings (employer pensions / government benefits / annuities), and calculate your portfolio requirement.
If you only have government benefits, and they total $30,000 annual you might decide you need an additional $50,000 of annual income, that might mean having a portfolio value of $500,000 at age 90. This is a simple calculation of $50,000 x 10 years of additional income from age 90 to 99. You might hold those funds in a balanced portfolio to seek some modest growth and inflation protection. That said, we don’t know if a balanced portfolio will create value/income beyond and above the late-in-life stage inflation rate.
Retirement home costs in Canada are experiencing significant inflation, with average year-over-year increases in the 4% to 6% range as of 2023–2024.
Also consider taxes including potential tax credits. Do your research.
And everyone will have a different number. Retirement home costs can range from $3,000 to $12,000 monthly. Healthcare costs can also add up. Here’s a solid article from Scotia Wealth Management, that includes many links.
The TFSA and retirement
An optimized retirement cash flow plan will typically spend down (early) tax inefficient portfolio holdings such as RRSP and RRIF accounts. The plan will instruct you to ‘leave alone’ and often feed the most tax efficient account – the Tax Free Savings Account. Taxable accounts might also receive funds not needed for spending in a certain period.
The TFSA is a very tax efficient vehicle with respect to protecting a spouse, gifting, the final estate and providing late in life tax efficient income.
Here’s is an example of how the strategic use of account types in an optimized retirement plan might affect account balances over time. We see the RRSP/RRIF balance decline (in red) as the TFSA grows (purple).
The retiree has a source of tax free retirement income to supplement pensionable amounts.
The RRSP meltdown might be a retiree’s greatest hack.
The principal residence might be the simple answer
When creating your life and estate plan, it’s essential to know how your assets are treated. Here’s the principal residence.
The principal residence is transferred tax free to a surviving spouse. The proceeds from a sale are tax free. Also consider that to age in place you might use a reverse mortgage or HELOC. You can tap the value of your home equity in sensible fashion.
You might also consider insurance to protect against the late-in-life costs.
Plan for healthcare costs, we must.
More Sunday Reads
At Findependence Hub investing beyond traditional utilities, a look at Hamilton’s UMVP ETF.
I use HUTS, the leveraged version in a couple of accounts.
And I am so enjoying my Canadian oil and gas stocks in 2026.
I recently offered: Will Venezuelan oil disrupt the Canadian oil and gas sector?
Maybe I should have asked, how much will the U.S. confiscation of Venezuelan oil assets help the Canadian energy sector? 😉 Of course, it’s early days in this Trump energy experiment. Stay tuned.
At Stocktrades, Dan wonders about the potential demise of a Canadian blue chip legend – Thomson Reuters.
Shifting gears, GenYMoney takes a look at the Toyota Highlander Hybrid model vs the traditional ICE gas model.
Bob at the Tawcan blog looks back at his 2025 goals and resolutions.
It was a busy week for Dividend Hawk’s portfolio. You’ll find sooooo many earnings reports from the U.S. and Canada.
Eating for longevity – food for thought
Here’s one I missed (from the past) on Booming Encore – Eating for pleasure or longevity: What’s most important for you?
While I cut out alcohol in May of 2024, I’ve recently tried to greatly reduce my sugar intake. Both alcohol and (lots of) sugar are poisons for your liver and other organs. I have a sweet tooth, and I’m trying to manage that. Generally we eat quite healthy and avoid junk foods and processed foods as much as possible. Add in lots of exercise, of course.
At The Retirement Manifesto, the things we never talk about. A look at the final years of work. It can feel like a lifetime.
Million Dollar Journey looks at Canada’s best mutual funds and why you should avoid them.
Of course, most Canadians should look to the asset allocation ETFs.
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Dale,
Congrats on cutting out drinking! I love not drinking. I also have a sweet tooth. What works for me is a once a week “cheat meal” to keep a balance…it is what we eat most of the time! Also, I adore medjool dates…have you tried them? Absolutely delicious as well as very healthy, always satisfies my desire for a sweet!