You’ve worked hard for the money, now it is time to protect it
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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 study[i] reveals that while Australians expect to spend 23 years in retirement (that’s more than half the time many spend in the workforce), money will run out for many 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? Or are you amongst the majority of Australians who believe that mortgages and other debts are among the main reasons they are unable to save adequately for retirement?
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 may have limited sick leave and annual leave
- 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 home, or perhaps on an investment property or holiday home.
Once you hit 50, the chances of suffering serious illnesses like cancer or heart attack increase and unfortunately so does the expense of getting insurance to cover you
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 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, for a person taking out cover at this stage in life (the time at which cover can becomes harder to afford) is the time when you’re more likely to claim than ever before.
Whilst the interest rate movements may have stabilised somewhat, they remain at historically low levels, reflected in both home loan and deposit rates (a fact causing retirees and those approaching retirement much consternation.) With term deposit rates around the 2 – 2.5% mark, the decision about how to make 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 your starting point should be to consult a qualified financial planner.
Contribution by Zurich Financial Services
[i] HSBC, The Future of Retirement Life After Work?, 2013, www.hsbc.ae/1/PA_ES_Content_Mgmt/content/uae_pws/pdf/en/future-of-retirement.pdf.
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