If you become ill before retiring, perhaps your money won’t last

BY FAZAAD BACCHUS

Everyone in some way is planning for their retirement. Whether it’s saving in an RRSP, a TFSA or non registered savings account, everyone is saving something for that day when they will not have the capacity to earn an income. For some, their retirement plan may be based on the fact that they have children, who will be able to take care of them, or for some, they may have real estate where they are receiving rental income, but again, everyone is planning in some way or the other.

Let’s focus on the individual who is currently saving in an RRSP or TFSA especially if they do not have properties which can be rented out. The only amount of money that will be there at retirement when you get there is the money that you send ahead. This means you have to save on a regular basis, invest in low risk investments and plan for the probability of a reasonable rate of return. This way by the time you are ready to retire, perhaps at 65, there should be a reasonable nest egg to last you for the rest of your life. So the nest egg I just referred to takes years of deposits and many years to gather.

What would be your situation should you become ill before retiring, would you be in a position to save the money needed for retirement? I am sure the answer is most likely no and then to compound the situation you may need to withdraw from current savings to pay current bills. There goes all the retirement savings you have and there goes your retirement, now what? Is there any way you could have avoided this financial predicament? Well consider insurance, is there insurance that you can purchase which can cover this risk?

Have you ever considered buying short or long term disability insurance or a long term care policy? When planning your finances, part of the process includes risk management, which means covering risk that would basically cripple your finances should they occur. Short term disability policies typically replace a portion of your income from as little as thirty days from the onset of a disability and long term disability can cover you all the way to age sixty five. Generally these disabilities are not permanent so the duration is uncertain and yet no one knows how long it can last. As long as you are paying into CPP plans (with certain guidelines) you are entitled to an amount from CPP until you recover or attain the age of sixty five, when it changes to your retirement benefit.

Another option is long term care which pays you a monthly income for as long as you are unable to perform two activities of daily living, examples being unable to feed yourself or use the toilet. This type of policy is really meant for the long term, but what happens if you pay in all this money and then you pass away before you can make a claim. Well certain contracts are designed to provide a full refund of premium if you don’t claim, so you don’t have to feel as though your money was lost. Talk with your advisor about these risk protection strategies today.