Sunday 5th March, 2006


Don’t let illness sicken your nest egg

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In a study by Mutual Fund Company T Rowe Price, it was found that people will require 70 per cent of their final year’s 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 insurance.

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 you’re 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.

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Designed by: Randall Rajkumar-Maharaj · Updated daily by: Sheahan Farrell