You have taken a long and varied pathway to get where you are, but you have finally reached that point in your life where you are confident about who you are and what you want. Whether it’s the satisfaction of a successful career or the joy of parenthood, likely you have much to be proud of, and while you’re not over the hill yet, the time to start planning for a comfortable retirement is now.
HSBC’s recent Future of Retirement study1 reveals that while Australians expect to spend 23 years in retirement (that’s more than half the time many spend in the workforce), many will run out of money after only 10 years, leaving them reliant on the age pension.
While you may know what type of lifestyle you want in retirement, can you be certain you will have enough money to achieve this lifestyle or how long your money will last?
Maximising your retirement savings and protecting your income during your last few years in the workforce should be a fundamental financial priority. But there are challenges. You may not be as healthy as you once were and have limited sick leave and annual leave to fall back on. You may have transition to retirement arrangements that rely on regular super contributions. If you live in the pricey cities of Sydney or Melbourne, for example, you may still have a mortgage on your own home, or perhaps on an investment property or holiday home.
You’ve got a lot at stake and you’ve come too far to not protect it, which is why insurance still plays an important role. So what type of protections might be important for you?
This is a question without a simple answer, although it’s likely that your income is central to your plans – so protecting it should be a priority.
Once you hit 50, the chances of suffering serious illnesses like cancer or heart attack increase. Trauma like this can leave a big dent in your savings, and trauma cover is designed to help you meet all those out of pocket costs that come with such conditions, so you can concentrate on recovering. The downside is that in your fifties, this type of cover can become expensive, so you really need specialist help to determine the best way to protect yourself in these circumstances.
Income protection and life cover can both be funded through superannuation, which can obviously help with cash flow but will draw down on your superannuation balance.
When it comes to funding cover, longer term certainty versus shorter term affordability is also often a major decision criteria and unsurprisingly, many life insurance customers (usually buying cover at a time that coincides with their peak indebtedness) find the short term cost savings of stepped over level premiums too tempting. This is especially true when the point at which level premiums put you ahead can be 10 years or more in the future. Paradoxically of course, if you are taking out cover at this stage in life (the time at which cover becomes harder to afford) is the time when you’re more likely to claim than ever before.
With current term deposit rates around the 2 – 2.5 per cent mark, the decision about how to make your money work harder becomes more complex, and there may be some people for whom level premiums may become more appropriate (even when that first year differential can be as much as 100 per cent or more.)
Whilst it is a given that some sort of protection is still important at this stage of life, the best mechanisms to achieve this protection will vary depending on your personal circumstances, which is why you should discuss your options with your Leenane Templeton Financial Planner.
1 HSBC, The Future of Retirement Life After Work?,