In a study by Mutual Fund Company T Rowe Price, it was found
that people will require 70 per cent of their final years
income to live in retirement each year.
If one assumes a tax-free $60,000 annual income in the year
of retirement, is it safe to assume that in the following
year, he will need only $42,000? If one is inclined to believe
that is sufficient, then to live for five years alone in retirement
will require $210,000 in savings.
If you were to live 25 years in retirement, your savings
and investment would have to yield some $1,050,000. And this
is what you will consume in those 25 years.
The stark reality is that we have but two intelligent choices:
either we will have to work for more years than we first imagined
or we will have to start saving for retirement much sooner
than we thought!
Locally, our tax laws have freed up some $9,000 of income
from taxes, for people with a $60,000 income!
It is a good time to start planning NOW!
If you select to work longer, because you are already aged
50 years and beginning sooner is out of the question, or for
that matter any other reason, are there obstacles to stand
in your way?
Perhaps the major obstacle to you working for a longer period
of years beyond your official retirement is illness. Diseases
such as cancer, hypertension, stroke and kidney failure are
notorious for striking after retirement.
The question that arises then is: what plans do you have
for medical expenses in particular? You have two choices.
First, you can save dollar by dollar and pay dollar for dollar,
ie save a dollar from after tax income to pay for every dollar
of medical expenses. Alternatively, you can purchase health
There are two categories of health insurance: group and
individual. Group health insurance does not count in this
scenario, since when you retire, or leave the job, your group
health insurance also ends.
Your solution, therefore, may lie in individual health insurance.
Given current lifestyles, statistics show that 80 per cent
of us will have a significant illness in retirement. Actuaries
say that if you are over age 55, the risk you present for
developing disease is simply too great to be insured.
So if youre 50 years old what can you get now? If
you are a non-smoker female in good health, with no history
of chronic disease, you can get individual health insurance
in the form of critical illness or dread disease cover.
For an annual premium of $9,000 you can get major or critical
illness cover up to $300,000. This will be valid up until
the age of 70 years. After age 70, the risk is too high for
insurers to extend coverage.
The best plans on the market allow you to save simultaneously
as you pay for the coverage. Approximately $150,000 can be
saved in the same policy, in the form of cash value.
In addition, death for any reason at any time up until the
age of 100 years will pay to the beneficiary $150,000, separate
and apart from the cash value. So death without a covered
critical illness event will pay out same $300,000 to the beneficiary.
If the female non-smoker, in good health, is aged 35 years,
to start sooner, is to purchase $600,000 of dread disease
cover, for an annual premium of about 70 per cent of what
the 50-year-old would pay.
Next week, we will look at some of the restrictive definitions
and the exclusions typical to individual health cover.