Protect Your Retirement Plans From The Impact Of A Critical Illness

Have you considered the impact of having to dip into your retirement savings? The cost of using RRSPs to cover expenses of an unexpected illness could result in the need to work longer or retire with less money than planned. Despite this, many Canadians don’t have an adequate plan for the unexpected.

In an Ipsos Reid survey*, 52 per cent of respondents indicated they would dip into retirement savings if faced with a major illness.

Critical illness insurance can help keep your retirement saving on track if you are diagnosed with a condition such as a heart attack, stroke or life-threatening cancer.

If you have critical illness insurance and satisfy the survival period, the benefit you receive can help pay those expenses, meaning you are less likely to have to dip into your existing registered retirement savings plan (RRSP) to help cover costs.

 

Consider this example

John is a 38-year-old male with annual earnings of $90,000. If he were to remain healthy until age 65, he could retire with more than $673,000 an in an RRSP. But John suffers a life-threatening cancer at age 52. Since he has no critical illness protection he needs money to cover daily living expenses and medical expenses and/or treatments not covered though his provincial healthcare plan. He withdraws $200,000 from his RRSP to pay these bills. To maintain his goal of retiring at of 65 years with the original RRSP amount, he would have to triple his RRSP contribution from the time of his diagnosis or retire with less than $275,000, considerably less than planned.

However, if John invests slightly less each month in his RRSP, and use the difference toward a premium on a $110,000 critical illness insurance policy with a return-of-premium rider, his retirement plans can stay on track in the event of a critical illness. In this scenario, if John remains healthy until the age of 65, he can retire with more than $626,000 in his RRSP, plus, be eligible for a return of premium of $43,751 for a total of nearly $670,000 for use in retirement.

Regardless of whether John suffers a critical illness, using some of his monthly contribution toward funding a critical illness with a return-of-premium rider can help protect his savings. The above example is for illustration purpose only. Situations may vary according to specific circumstances

 

Most people never prepare for a critical illness

Deciding to include critical illness insurance in your financial security plan can be an import way to reduce financial risk and help protect your savings. By using a portion of your planned RRSP contributions to fund critical illness insurance, you can help protect your savings and keep your retirement plans on track.