When retirement’s a tough decision: health issues and retirement planning

Is a concern about your personal health or the health of a family member causing you to consider early retirement? This article will help you explore your options.

Health concerns can creep up unexpectedly, forcing a change in our carefully laid plans. This can be a difficult time, leaving you feeling overwhelmed by the decisions you have to make. Take the time to review your options so you can make the best choice for your family, your own well-being and your financial security.

Your employer can help

Don’t face tough decisions alone. If you’re unsure about retiring early, talk to your employer first about options that may be available to you, including taking a leave of absence or going on long-term disability (discussed later in this article). You may find that you don’t need to retire early and can stay with your employer’s health plan.

If you don’t think you will be returning to work with an employer under the public sector pension plans or be eligible for long-term disability coverage, then early retirement might be an option for you.

Retiring early

The normal retirement age is 65 with an option to retire as early as 55. If you retire early, you may receive a reduced pension, depending on how old you are and how many years you contributed to the plan.

The personalized pension estimator is a helpful tool for seeing what your monthly pension income would be based on your age at retirement. You can explore different scenarios to see how they could affect your pension income.

Your pension may not be your only source of income in retirement—you may have your own personal savings and you may be eligible for government benefits such as old age security (available at age 65) and the Canada Pension Plan. The federal government's Canadian Retirement Income Calculator can help you estimate your retirement income from both your workplace and government pension sources.

Buying a temporary annuity

If you decide to retire early, you may have the option to choose a temporary annuity to increase your retirement income. An annuity would continue until you turn 65 (however, if you die before age 65, the annuity would end on your death). The annuity option is available only if you choose the 100% joint life pension with a five year guarantee or a single life pension with a five year guarantee.

The advantage of a temporary annuity is that it boosts the monthly pension income you receive in early retirement. This can help you meet your financial obligations—such as paying off a mortgage—before you turn 65. However, once you reach 65, your temporary annuity payments would stop and your monthly pension income would be permanently lower than if you had not chosen the annuity (to pay for the cost of taking the annuity up front).

Applying for extended health care coverage

At retirement, you are eligible for voluntary post-retirement health benefits including extended health care and dental, as long as you retire directly from active employment to a pension. Your spouse and dependants may also be eligible. This coverage can help pay the cost of medical expenses that are not typically covered by provincial health care plans. These can include the cost of prescription drugs, mobility aids, paramedical practitioners and other medical items or services that may be needed by an ill spouse or eligible dependant enrolled in the plan.

Keep in mind, however, that both you and your eligible dependants must enrol in the extended health care and/or dental plans within 60 days of your pension-effective date. If you plan to enrol in this health or dental coverage, be sure not to miss this deadline.

Exploring options other than early retirement

You may also want to consider options other than early retirement, such as taking a leave from work. You can request a general leave or, depending on your circumstances, the Employment Standards Act supports compassionate leave for employees in a range of personal situations. Leaves vary in length, and may or may not apply to your situation. Your human resources department can tell you about the types of leave you may be eligible for.

You may be able to buy back the service for your leave afterwards, or in the case of an ESA–approved leave, you may have the option to continue contributing to your pension plan while on leave. This would increase your pensionable service, and possibly increase the pension you receive when you retire. The personalized purchase cost estimator can help you find out the cost of buying service for a leave.

If you yourself are ill, you may qualify for short- or long-term disability. In most cases, if you are on an approved disability leave, you will not need to buy back service as you will continue to be credited with pensionable service as though you were still working.

Making the decision that’s best for you

Deciding what to do is very much a personal decision, and will depend on your particular circumstances. It’s a good idea to invest the time to use the personalized pension estimator and purchase cost estimator to explore different scenarios and estimates. You may also want to speak with an independent financial adviser for their perspective and professional advice.