Personal finance: Health gains not keeping up with longer lives

Retirement happens in three stages, with more spending at the beginning and end.

Retirement happens in three stages, with more spending at the beginning and end.

The quest for eternal life is going well in New Zealand, with lifespans expanding every decade.

But if living well and healthily is the real goal, things are not so rosy.

Life expectancy is growing much faster than health expectancy, so a third of our newly gained extra years look likely to be sickly ones.

Our lives are getting longer, meaning more sick years as well as more healthy years.
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Our lives are getting longer, meaning more sick years as well as more healthy years.

This makes it tough to plan for retirement, which is usually modelled on life expectancy alone.

READ MORE: The first stage of retirement

We may be able to work longer, but we also may need longer round-the-clock care.

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We are going be riding motorbikes longer but also spending longer in hospitals and dementia homes. 

GREAT EXPECTATIONS

At some point in the 1960s, American health officials realised there was no point in living ever-longer if all our extra years were going to be spent disease-ridden.

Lots of countries now track health expectancy, which is usually defined as years of active, independent or disability-free life.

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Predictions differ depending on whether you measure full health, active years of life, years lived independently or merely years free of severe disability.

But the point of all the measures is the same. New Zealand's Health Ministry says goal of public health measures should be adding life to years, as well as years to life. 

When people live longer, they also get more healthy years - that much the World Health Organisation is confident of.

But that doesn't mean our healthy years keep pace with growing lifespans.

Currently we Kiwis add about two more poorly years for every five additional healthy years of lifespan.

So if men gain two years of lifespan in a decade they gain only 1.2 extra healthy years.

Or look at women. We may earn less and rule fewer countries than men do but we also live longer, on average.

Health statistics show a baby girl born in 2011 could expect to live to 83, four years longer than a typical male.

The trouble is that only 1.3 of her four extra years are likely to be lived in good health, because men's lives are proportionally healthier.

While a girl can expect to spend 12 years in poor health a boy gets away with just 9.3 years of poor health, or 12 per cent of his life, compared to a girl's 14 per cent.

That's according to Health Loss in New Zealand, a 2013 report from the Health Ministry's Burden of Diseases, Injuries and Risk Factors Study 2006-2016.

The news is more sobering for Maori men and women, whom the study estimates will spend more years unwell than others despite expecting shorter average lifespans.

Both sexes are living longer, Maori or non-Maori, but our healthy lives grow slower than our lifespans. 

HEALTH AND MONEY

Health affects savings in contradictory ways.

Living proportionally more sickly years might mean you should budget less for wild adventures, or it may mean you should count on spending more on private healthcare, or both.

Women are often told they must save more than men to account for their longer life expectancies, but the issue of health expectancy confuses things.

Men, for example, may be more likely to be in sufficiently good shape to work for more of their shorter lives, depending on the job. But they may also have proportionally more "active" years of higher spending.

If people remain healthy enough to work longer, the burden on private and public purses will not be as great as if people kept living longer but retiring at 65.

On the other hand, if people spend longer incapacitated that extends the expensive final stages of our lives.

U-SHAPED CURVE

Of course, you might die instantly of a heart attack after leading a full and active retirement, or you may have a health scare early on and remain in poor health for some 30 years. Statistics are only averages.

As a starting point, Statistics NZ calculations suggest that from age 65 both men and women can expect to spend about half of their remaining lives (seven to 10 years) with some kind of disability. For seven or eight of those years they might not be able to live fully independently.

The Commission for Financial Capability offers a different way of looking at it.

While it doesn't make too many predictions about health-spans, the financial boffins at the commission have made a handy U-shaped spending curve which offers some hints about retirement lifestyle and what it would mean to spend some of the time sick.

The idea is that retirement happens in three stages, with more spending at the beginning and end.

Note that Sorted's retirement stages look long compared with the ministry's life expectancy figures, but that is because the Ministry figures are calculated at birth, so the average is dragged down by people lost too young to illness, suicide or car accidents.

Every year a bloke or woman manages to survive extends their life and health expectancy at retirement. 

In Sorted's model: "In the early stages lifestyle drives spending, then in the middle stage spending slows as you slow down a wee bit. In the late stage spending may go up due to increased costs relating to health and well-being."

The early years (ages 65-74) are when you are expected to want more action. Travelling, seeing family and spending more time on hobbies and interests might make this the most expensive phase of retirement, says Sorted.

At the next stage (75-84) Sorted says spending typically plateaus as people settle into a routine and pursue their hobbies more sedately.

"Many are still pursuing their hobbies and travelling but at a slower pace, which means steady costs. Ideally in this stage, health-care costs have been planned because sometimes health issues prompt unexpected spending on health services," it says.

Then come the final years, from 85 onwards.

Sorted suggest spending can go drastically up or down, depending on factors such as health and how much you want to leave the kids with.

"For many the cost of living drops dramatically in this phase, assuming you don't need full-time health care. However, if your health dictates that you need to be in an environment with care at hand, then costs will go up during this phase, often rapidly depleting your resources."

One question will be whether to trust your health needs to the public system, or whether you want to stump up for very high (at this age) health insurance costs or even self-insure by setting money aside for private operations.

Even if the the savings pot is empty, Sorted points out that New Zealand has safety nets for this phase of life: home help, rest home subsidies, GP subsidies and free hospital care.

Of course, you might be cruising the Maldives and cursing your younger self for spending all the cocktail money.

Whether you'll need it is anyone's guess.

 - Stuff

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