12 July 2017
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Retirement: best of times, worst of times.
You can afford to play golf but can you afford to be ill?

Few people would expect their children to pay for those long awaited holidays planned for in retirement. Yet a worrying number of us will be forced to ask our children to foot the bill for unaffordable health insurance premiums or exorbitant hospital fees. By planning ahead early on, you can avoid having to give up health insurance when you need it most or asking family to subsidize it.

Life can be unpredictable at the best of times. There are two events, however, that most of us can be absolutely certain of: we will retire and, at some point, we will die. What happens to us between those two events seems more difficult to predict and therefore more challenging to prepare for.

Actually, there is more certainty in old age than at first appears. Sure, most of us will retire later and live longer than our parents. But being older for longer comes with known risks: health risks. There is a good reason why health insurance premiums increase, often dramatically, with old age: because insurers know for certain that, as you get older, your health will deteriorate and you will need them more.

What they know is this: the risk of getting heart disease, cancer, respiratory disease such as chronic bronchitis, emphysema, pneumonia, osteoporosis and diabetes dramatically increases beyond the age of 65. They also know that you are much more likely to require hospital admission for elective procedures such as hip or knee replacements, or as a result of a fall.

This knowledge is not the secret preserve of insurers or civil servants. The data is there for all to see. Yet, governments and financial advisers who are already struggling to persuade people to plan for retirement and death, find it even harder to encourage them, particularly if they are young and healthy, to prepare financially for the inevitable increase in the cost of healthcare as they get older.

Ironically, the people who are the most comprehensively insured for healthcare are those who need it least: the young and healthy. This is largely because they are employed and many employers include health insurance as part of employee remuneration. By the time retirement day comes however, the premiums have risen and continuing the policy without the salary suddenly seems prohibitively expensive. No wonder then that many fledgling retirees find themselves uninsured precisely when they become more vulnerable.

There is of course the option to take up a health insurance policy later on in life and there are many reputable and specialist insurance companies who offer policies specifically for older people. However, there is a penalty for joining later: most of these policies will require a full medical history and immediately exclude all pre-existing conditions.

So one of the benefits of taking out a policy early on in life, when you are still fit and healthy, is that many of the health problems likely to affect you in later life will be covered. Even though the insurance premiums will still rise, the policies will be better value because you will be better covered.

Whether or not you have been sensible enough to take out health insurance in your forties, there is still the problem of paying for it in your sixties or later. For many people, there is a real risk that their retirement income or pension pot just won't be big enough to continue the policy. So what is the solution?

The good news is that there is an alternative to funding healthcare in retirement out of your pension or retirement income. Once again, it involves planning ahead. Basic in-patient healthcare insurance for an individual aged between 65 and 80 can be expected to cost around USD$160,000 or GBP£120,000. So, fifteen or twenty years prior to your retirement, you could set up a regular savings plan with a guaranteed maturity amount to pay out on your sixty-fifth birthday which would then cover those expensive health insurance premiums in retirement. At current rates, putting aside as little as USD$650 a month for only fifteen years would generate a guaranteed USD$160,000, allowing you to preserve your health insurance when you are most likely to need it.

Whatever your age or situation, seeking sound financial advice as soon as possible is essential to avoid a predicament that could be as distressing as it is inevitable. A financial adviser will be able to talk you through the options available, whether it's establishing a sensible savings plan or selecting a good quality overseas medical insurer and the most suitable - and affordable - policy for you and your family.

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