Protect Your Retirement Savings With Critical Illness Insurance

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BY FAZAAD BACCHUS

Your retirement savings will take you many years to accumulate. Every dollar saved is an important part of building your retirement nest egg. This is important to do because you may be dependent on this retirement savings for many of your retirement years. The typical life expectancy for a sixty five year old is age eighty five so you need to have savings that will last you for twenty years. If you plan carefully that is not an unachievable goal.

If at retirement you need $3,000 per month to live and you are receiving maximum CPP of $1,092.50 and an OAS of $570.72 totaling $1,663.02, you will not qualify for GIS therefore will need to make up the balance of $1,336.98 through your own savings. To be able to generate $1,336.98 per month you should ideally have a lump sum savings of $250,000 which is earning at least 3% to ensure that you don’t outlive your money.

Supposing you are aged fifty today and you have already saved $100,000, without having to save another dollar you may be able to achieve your retirement saving goal of $250,000 just by investing wisely through the help of a financial advisor. As mentioned, before this is not difficult.

However this brings me to the topic of this article: What if at age fifty you were to suffer a critical illness. Would you draw down on your retirement savings? Well the answer for most people is a resounding YES! Of course you would, you have bills that need to be paid and if you are not at work and especially if you have no disability income, the money has to come from somewhere.

The harsh reality of life is that every seven minutes someone in Canada suffers a heart attack and with the help of good medical attention since 1952 there has been a 75% increase in the survival rate. 40% of women and 45% of men are likely to be diagnosed with cancer at some point in their lives and 81% those under age forty five are likely to survive for more than five years. A good critical illness policy will cover you and pay a lump sum to you while you are alive due to the  following Illnesses: heart attack, stroke, cancer, multiple sclerosis, coronary bypass surgery, kidney failure, blindness, deafness, loss of speech, Alzheimer’s, Parkinson’s, paralysis, major organ failure on waiting list, major organ transplant, motor neuron disease, bacterial meningitis, aortic surgery, heart valve replacement, aplastic anemia, loss of independent existence, severe burns, coma, benign brain tumor, loss of limbs and Occupational HIV.

What effect does such an illness have on someone’s savings and retirement plan? Let’s stay with our fifty year old. He withdraws $75,000 from his RRSP. After paying taxes he is left with approximately $55,000 in his hand and $25,000 left in his savings. He is able to recover due to the fact that he doesn’t have to worry about the bills but his retirement plan has been shattered. To recover he has to save $737.00 monthly for the next fifteen years to get back to $250,000 at retirement age. Now that is an impossible task!

Could he have avoided this financial pit fall? Yes, our fifty year old could have sat with his financial advisor and instead of reinvesting his entire returns; he should have put some of it in an asset protection plan.

This way he is preserving his capital as well as saving for his retirement. Without proper financial planning it is difficult to understand how these events can and may affect us. Every Financial Security Plan ensures that the client is protected against premature death, critical illness, disability, long term care and outliving their savings. Talk with an advisor today.

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