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How much thought have you given to retirement?

  • At what age will you retire?
  • Where will you stay?
  • Will you be debt free at that point?
  • Will you be buying a new car as you retire and keep it through retirement?

I have found most of us start focussing on this too late. Now here’s what’s interesting…

Everyone I speak to thinks they’re going to make it to retirement – a foregone conclusion.
But what if you don’t make it to retirement? What financial plan have you made for this?

Let me tell you a true story…
Paul and Sue were a young couple with two bright and talented children. In their thirties they were heavily indebted but the future looked bright. They owned two luxury vehicles and a lovely home. Little did they know that things were about to come crashing down.

At age 40 Paul got sick. He asked me to come over and look at their life insurance policies. Two weeks later I paid him a visit.
What I saw shocked me – I was looking at a skeleton!
Paul had been diagnosed with pancreatitis. Two months later Paul passed away.

Now here’s the sad thing

A couple of months prior to this, because of financial pressure, Paul had cancelled all his life insurance.
Paul had been the major breadwinner. Sue found herself with a quarter of their previous income and sitting with more than a million in debt.
Slowly but surely all their assets were lost. At 40 Sue had to start again from scratch.

So how could I have helped?

Firstly, they needed to know that they were on the edge of a financial precipice. If you financed a million Rand car would you drive it on our roads without insurance?

If you owe money – and have people who count on you – it’s just wrong to leave them with nothing.

  • Every year sit down and assess how much you owe in debt
  • Reduce this by any liquid assets you have
  • Now ask whether you have enough life insurance in place to take care of this

I would then have asked them about the lost income if one of them passed away. The debts would have been taken care of, but could the family maintain their lifestyle? This is where a financial advisor comes in.

  • Step one is to work out how much they need to earn if they were left debt free. If the one salary is insufficient then life insurance is the only option.
  • Step two is to work out the number of years that this income is required for
  • Step three is to ask whether this income must increase every year as the cost of living goes up
  • Step four is to assume that any lumpsum of life insurance will be invested and that it will earn interest
  • Step five is to realise that this interest will be taxable in the hands of the surviving spouse. This additional expense needs to be factored in.

You need a financial advisor whom you can trust. But who?

I’ll discuss that in the next financial planning article.

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