THE importance of health costs in retirement planning continues to be a topical issue.

Emotional well-being is as important as the physical and preparing for retirement should take into consideration all factors, so today we will examine retirement readiness and the emotional cost of leaving one’s job behind.

Last week I interviewed a male client who has been diagnosed with a critical illness. It was with mixed emotions that I listened to his story of perseverance and commitment to stay the course despite his circumstances. With less than 10 years to normal retirement, he contemplated early retirement as his health becomes a priority at this time. An astute businessman, he recognised that having a pension plan and streams of income was crucial to his peace of mind in retirement, as well as the growth of his business. Life insurance, health insurance, and short-term and long-term investments, including a pension plan, formed part of his diversified investment portfolio.

Upon diagnosis of the critical illness, he received a hefty payout that has aided him tremendously. He purchased non-medical critical illness insurance less than three years ago. The cost of life and health insurance as an older adult (eg in the 50s) is more expensive than if purchased at a younger age. With several critical illness policies in place, this businessman paid approximately $80,000 per month for critical illness coverage.

I do not think a number of people would be able to afford that kind of monthly premium for critical illness coverage, but if critical illness coverage is purchased much earlier in life, the cost would be significantly less. However, my client made the sacrifice late in life because he recognised that it was better to be prepared as health risks become greater with ageing. He also knew that these plans have a premium refund benefit at a specified age. Critical illness coverage can provide additional income for the pre-retiree, retiree, employee, or employer who may be forced to stop working early due to a critical illness.

Some individuals are, however, reluctant to purchase critical illness insurance because it is also likely that they may never be diagnosed with a critical illness. The non-medical critical illness policies tend to be at a great risk of lapsing because there is no cash benefit. Upon the expiry date of the policy, the refund of premiums will be less than the premiums paid. It takes determined effort and discipline to maintain payments of premiums.

Critical illness coverage and life insurance cost more for men than women, whether the insurance plans are underwritten or non-medical policies. Generally, for both males and females, premiums for the underwritten critical illness plans are more expensive than the non-medical ones and offer more features and benefits, such as cash values and higher sum assured for coverage. There is no waiting period for the payout of insurance or death benefits, unlike the non-medical plans which have a stipulated waiting period and which give a refund of premiums if death happens within the waiting period.

As a financial advisor, I am au fait with the high cost of health care costs and its impact on retirement planning. Therefore, life and health insurance form part of the financial planning of the client. This client has been able to reduce significantly the cost of his monthly medication. His group health insurance covers 95 per cent of his medication monthly and the National Health Fund (NHF) benefits account for 50 per cent of the remainder. Therefore with both the NHF and group health insurance benefits his out-of-pocket cost for drugs has been reduced to $5,000 per month.

As a pre-retiree, he is better prepared for retirement. Not only have the insurance payouts been able to satisfactorily cover his expenses, but this client has been able to invest significant amounts of his insurance payouts in short-term and long-term investments. He knows that he may still live a long time in retirement and he also want to ensure that his family enjoys a comfortable standard of living should he die early.

A point of discussion was whether it was wise to accept early retirement at this time. I recommended that retirement be delayed. This will allow his pension funds to continue to grow and will provide more income when he needs it most. He is not financially distressed and is coping quite well emotionally. Since the illness has not made him immobile he is able to work and function normally and put a succession plan in place. He is aware now more than ever of the value of time.

Being emotionally prepared to retire is very important. Recently in a discussion forum, someone shared that endearments given by clients on the job were often attributed to the employee’s role and not the individual. Another said that the feeling of being part of the work family is over when the employee leaves. I recommend that retirees keep their minds engaged. It’s the key to a fulfilling time in retirement. Someone once said, “Retire from your job, but never retire your mind”.

Grace G McLean is a financial advisor and retirement specialist at BPM Financial Limited. Contact her at: gmclean@bpmfinancial.com or visit the website: www.bpmfinancial.com. She is also a podcaster for Living Above Self. E-mail her at: livingaboveself@gmail.com