It should come as no surprise to investment professionals that increasing numbers of Canadians are considering putting off retirement. Some people are still rebuilding their investment portfolios after the crash of 2008-09, and ultra-low interest rates are translating into little or no yield for fixed-income investments.

But some people have another reason to postpone retirement: fear of spiralling health-care costs.

A recent survey by Toronto-based Munich Reinsurance Co. of Canada found that more than 60% of Canadians approaching retirement plan to work longer in order to hold on to their health benefits. Among active employees receiving health-care coverage from their employer, 30% said that continuation of health and dental benefits was the main reason to keep working past 65 years of age.

Employers have steadily reduced retiree health-care benefits in recent years, in an effort to rein in overall costs of employee benefit programs — perhaps figuring that retiree benefits are the least visible to plan members.

“They have hacked away at it,” says Faizel Alladina, vice president of group insurance with Munich Re, about employers’ strategy to deal with legacy costs. “Anyone who is close to retirement age is not going to be happy with the change. But [for] new hires, I think it is pretty much now standard for those companies that don’t want to be in the retirement business, they are not offering [retirement benefits to this group].”

Munich Re’s survey found that Canadians expect to spend a rising proportion of their retirement income on health-related needs as they age, with 68% agreeing that health care will account for a greater percentage of their expenses. At the same time, just 32% are financially well prepared to deal with health needs in retirement, and just 26% are confident they could financially handle a sudden, unexpected illness or accident without compromising their lifestyle.

Munich Re sees a gap in the market for retirees who either face a scaled-back health plan or have no plan at all, Alladina says: “The options that are available in the market just don’t provide you with the level of protection that you need. They have a lot of caps on these programs, they have low levels of benefits. That is what advisors need to know.”

The impact of rising health-care costs should definitely be on the radar for financial advisors, says Al Nagy, regional director with Winnipeg-based Investors Group Inc. in Edmonton: “While you are going to have some cash-flow expenses dropping, others, such as prescription costs, are going to increase. I tell [clients] to factor that into their plan. Take a look at what your employer plan will cost because you could be hit with a fairly significant expense on an annual basis.”

Nagy recommends clients consider buying enhanced health-care insurance to fill the gap between the employer plan and provincial health-care coverage, which depends on factors such as age, optional benefits and province.

Drug costs increase by about 40% for each five-year rise in age for older Canadians, Nagy adds: “If you look at a 30-year-old employee, he or she will do about nine prescriptions a year on average, and someone who is 60 will claim about 30 prescriptions a year. And someone who is in his or her 80s will claim about 60. So, in 20 years, it doubles; it is definitely a factor to look at.” IE