You can hardly open a newspaper or magazine these days without reading an article on the topic of healthy living. We are told that eating the right foods and taking exercise will improve our quality of life and maybe prolong our life. But what effect does your state of health have on your financial planning? Most of us will be aware that being in good health means no loading on premiums for life, income protection and travel insurance. Less of us may know that demonstrating membership of a gym or similar club may lead to a discount from medical insurance or that having a chronic medical condition may result in receiving improved annuity rates.
This article will focus of the importance of considering your health when planning your finances for retirement. If we knew how long we would live, financial planning would be very easy. We do not know but we do have some clues, for example, have we smoked for any period of time, are we overweight and lead a sedentary life, is there a history of cancer or heart disease in our family?. None of these factors mean that we will not live to a ripe old age but they are considerations. On the other hand if we take exercise and eat sensibly we may have an increased chance of living a longer and healthier life but there is no guarantee.
Recently the Government have abolished the need to purchase an annuity with your pension fund. This announcement has been welcomed by many. However, if you are likely to live into your 90s or even reach 100, then taking out an annuity may be a sensible thing to do. The Insurance Company are taking on the liability of your long life. An annuity is a type of insurance against longevity. So just because Annuities are no longer fashionable does not mean that they no longer play a part in planning.
If the factors in your case do point to the possibility of a long life then you need to consider the effects of inflation on your income over time. Many clients avoid investing in equities as they get older but asset backed investments such as property and shares are one of the ways to preserve the purchasing power of your capital. Equities or collective funds investing in equities should form part of a well balanced portfolio.
If your health is poor then you need to factor this into the planning.. Your investment horizon could be shorter and the investments easily accessible and lower risk so that capital can be made available quickly if there is, for example, need for expensive medical treatment. Looking forward and imagining your medical condition in say 5 or 10 years’ time, may lead you to consider moving into more suitable accommodation which is in close proximity to shops and medical assistance. It is better to take those decisions and life changes now rather than waiting until you are unwell.
Talking about health leads to the obvious question which is “Should you have medical insurance?” This is a difficult to question to answer and varies from client to client, the insurance company are taking on your medical liabilities and many clients find this a comfort. However as you go into retirement you need to ask yourself the question “Will I be able to afford medical insurance in retirement?” You need to be aware that premiums increase dramatically as you age, even if you keep the policy you may need to abandon it at a later date. There is a school of thought which suggests that saving the premiums into your own segregated medical expenses fund is a more flexible arrangement. This can only work if you rely on the NHS for all major medical expenses and use the fund for consultations and minor medical procedures..
In conclusion, whatever your state of health there are two legal documents you should have in place, a will and a lasting power of attorney – you never know when these may be needed!