Planning for Healthcare Costs in Retirement 2025

Updated: March 2025 · bremo.io

Healthcare is one of the most underestimated costs in Canadian retirement planning. Many retirees assume Canada's public health system will cover most of their medical needs, but the reality is that out-of-pocket health expenses rise significantly with age — and many of these costs are not covered by provincial health plans. Failing to plan for healthcare costs is one of the most common mistakes in Canadian retirement planning.

What Canada's Health System Covers in Retirement

The good news: core medical services remain publicly funded throughout retirement:

• Physician visits (GP and specialist)
• Hospital care (surgery, emergency, inpatient)
• Diagnostic imaging and lab tests ordered by physicians
• Some home care (through provincial programs — but often limited)
• Long-term care facilities (subsidized, but with significant co-payments and wait lists)

At age 65, additional provincial senior benefits often include:

• Enhanced prescription drug coverage (through provincial senior drug plans)
• Annual eye exams covered by the province
• Some provinces add limited dental programs for very low-income seniors

What You'll Pay Out of Pocket in Retirement

Years 65–74: Active Retirement Phase

Most retirees in this phase are reasonably healthy but face increasing costs:

• Prescription drugs: $1,000–$5,000/year (above provincial plan coverage)
• Dental care: $1,000–$3,000/year
• Vision care: $300–$600/year
• Paramedical services (physio, chiro, massage): $1,000–$3,000/year
• Hearing aids: $3,000–$7,000 every 5–7 years
• Travel insurance (snowbirds especially): $1,000–$4,000/year
• Private insurance premiums: $2,000–$6,000/year for a couple
• Total estimate: $5,000–$15,000/year per person

Years 75–84: Increased Need Phase

Health challenges become more common. Costs rise with medications, specialist care, home modifications, and home support:

• Prescription drugs: $3,000–$100/year
• Home care (PSW, nursing): $5,000–$30,000/year depending on hours
• Home modifications (accessibility): $5,000–$30,000 one-time
• Dental: $1,500–$4,000/year (dentures, implants)
• Total estimate: $100–$40,000/year per person

Years 85+: High-Dependency Phase

Long-term care needs dominate. Even publicly funded LTC facilities charge $2,000–$4,000+/month in accommodation co-payments; private retirement residences and assisted living cost $4,000–$100+/month:

• Publicly funded LTC co-payment: $24,000–$48,000/year
• Private retirement home: $48,000–$120,000/year
• In-home 24-hour care: $100,000–$200,000+/year
• Total estimate: $30,000–$200,000+/year

Strategies for Funding Retirement Health Costs

1. TFSA as Healthcare Reserve

The Tax-Free Savings Account is the ideal vehicle for earmarking retirement healthcare funds. Withdrawals are tax-free and don't affect income-tested benefits (OAS, GIS). Consider designating a portion of your TFSA specifically for health expenses, invested conservatively in near-retirement years.

2. Maintain Private Health Insurance

Purchasing individual retiree health and dental insurance before group coverage ends (ideally converting from group) provides the most cost-effective access to coverage. Premiums rise significantly with age — locking in coverage while younger and healthier is far less expensive.

3. Long-Term Care Planning

Decide explicitly how you would fund LTC needs:

• Self-insuring with dedicated savings (requires $200,000–$500,000+ earmarked)
• Long-term care insurance (purchase in your 50s for best rates)
• Home equity strategy (reverse mortgage to fund care)
• Family support plan (discuss explicitly with family; don't assume)

4. Income-Testing Awareness

Several provincial programs are income-tested — keeping income below certain thresholds in retirement can unlock meaningful public health benefits. Key thresholds to understand:

• GIS (Guaranteed Income Supplement) qualification income levels
• Provincial drug plan income thresholds
• Canadian Dental Care Plan income threshold ($90,000 adjusted family income)
• Low-income senior programs in various provinces

Strategic RRSP drawdown planning, income splitting, and TFSA prioritization can help optimize income levels to access these programs.

5. Health Spending Account for Still-Incorporated Retirees

Some retirees retain their corporation for consulting or investment income. If so, a corporate Health Spending Account can continue to provide tax-efficient reimbursement of medical expenses through the corporation.

Building a Retirement Health Cost Budget

A practical framework for retirement health planning:

1. Estimate expected health expenses at 65–74 (typically $5,000–$100/year per person)
2. Add 5–7% annual health inflation (healthcare costs rise faster than general inflation)
3. Model LTC costs starting at age 85 using local care costs in your city
4. Identify which provincial programs you qualify for at different income levels
5. Determine your insurance strategy (retiree plan, convert from group, individual)
6. Earmark dedicated savings in TFSA and non-registered accounts for health
7. Run the plan through a financial advisor with experience in retirement healthcare planning

The Medicare Myth — Setting Realistic Expectations

Many Canadians overestimate how much of their retirement healthcare the public system covers. The provincial plan covers physician and hospital care — but the fastest-growing costs in old age are drugs, dental, home care, and LTC accommodation, most of which are not fully publicly funded. Planning as if you'll need to self-fund a significant portion of these costs is the prudent approach.