The Lifecycle Financial Planning Approach

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The lifecycle financial planning approach places all your financial activity into distinct time periods, or stages, with retirement acting as the final phase in the financial lifecycle.

This approach is powerful as it provides you a clear framework for evaluating different decisions. Here are the 5 standard financial life stages encompassed in the lifecycle approach. Keep in mind the stated age ranges are merely guideposts, some of you will pass through stages more quickly or more slowly depending on your circumstances.

1. Early Career
Ranging in age from 25 to 35 years old, early career phase adults are starting to build a foundation for a strong financial future. You may be planning to start a family, if you have not done so already. If you do not yet own a home, you might be saving for one. At this stage, keeping income in step with expenses is a struggle, but it’s important to lay the groundwork for retirement saving now.

2. Career Development
From ages 35 to 50, earnings rise, but so do financial demands. Keeping expenses in line with income is a challenge in this stage. Many families are concerned with covering college costs and paying for ongoing expenses while also increasing the pace of saving for retirement.

3. Peak Accumulation
In this stage, from the early 50s into the early 60s, you typically reach your maximum income level. It may be a time of relative freedom as your children have graduated from college. Without college tuition and with lower expenses, you can accelerate savings rates to position yourself for a more secure retirement.

4. Pre-Retirement
About 3 to 6 years before winding down professionally, you should start restructuring assets to reduce risk and increase income. By this point, mortgages are usually paid and children are independent. This is the time to evaluate retirement income options and the tax consequences of investments.

5. Retirement
The final financial lifecycle phase occurs for people in their mid-60s and beyond. Once you stop working, your focus shifts from wealth accumulation to income preservation. In this stage, the goal is to preserve your purchasing power and enjoy your desired lifestyle. Estate planning and legacy considerations also gain importance as you age.

As we transition through each life stage, we should adjust our focus each step of the way to ensure our financial plan remains appropriate for our risk tolerance, age and goals.

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3 things about your employer-provided insurance you may not know

benefitsIt is great if you are working in a company that provides you with benefits such as insurance. However, there are some limitations to employer-provided insurance that you should know. Here are 3 of them:

1. It’s a benefit, not a guarantee.

Fact is, companies are not obligated to offer life or health insurance. Just because your employer is offering it now, doesn’t mean they will in the future. A lot of companies are in cost-cutting mode, and benefits like life insurance can disappear without notice.

2. If you have it, it’s most likely not enough.

Most employer-provided life insurance coverage is one to three times your salary. So if you make $50,000, having up to $150,000 of life insurance sounds like a lot, right? But if you try to put that money to work in today’s interest rate environment, you’ll soon find out it doesn’t go very far. And if your family needs to spend $50,000 each year, what are they going to do after the third year?

3. It doesn’t protect your insurability.

Think about what would happen if your health changes while you only have employer-provided health insurance, but then they drop the coverage and you’re no longer able to get covered? Or what if you lose your job, or change jobs and the new employer doesn’t offer life or health insurance as a benefit?

Typically, employer-offered group insurance is not portable, meaning you can’t take that coverage with you when you leave a job. Buying an individual policy prevents this because it’s something you own.

The bottom line, is that it’s good to have employer-provided life insurance, but don’t ignore the greater need you may have for individual life insurance coverage too.

12 Questions to Ask when Reviewing Your Life Insurance Coverage

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I recently came across an article about an expectant mum who found out she had stage 4 cancer at age 33. Feeling the unpredictability of life, I’m compelled to write this piece.

Reviewing your life insurance coverage is a crucial part of financial planning and there are some key questions to ask to ensure you still have the right policy in place at the right cost.

Getting started: what you need

  • A copy of your original life insurance policy illustration
  • Summary of the policy features and benefits

Your current policy and circumstances

  1. Is my life insurance policy still in force?
  2. What type of policy is it? For example, term insurance or whole life insurance
  3. Have my needs changed?
  4. Is this still the right type of policy for my needs?
  5. Do I need more or less life insurance cover than I currently have?
  6. Can I still afford the premiums?
  7. If I need to increase my cover, has my health deteriorated or am I leading a healthier lifestyle that could mean better pricing for increased cover I may want?

Beneficiaries of your life insurance policy

  1. Who are your named primary beneficiaries?
  2. Are your name primary beneficiaries still those you would like to benefit from the proceeds of your policy?

Policy features and benefits

  1. Does my policy have any guarantees? If so, what are they? Are they still beneficial to me?
  2. Are there any ‘policy review’ points that I can benefit from? E.g. ability to increase the cover without further medical underwriting.
  3. Can I borrow against the cash value of my policy from the insurance company? If so, do you want to take advantage of this feature?

Why Should I get Disability Income Insurance?

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How would you get by if u lose your ability to work and earn a paycheck every month?

Financially speaking, working disability is worse than death. Our earning ability is our greatest asset and you are the golden goose that lay the golden eggs. Most insurance policies only pay when the golden goose drops dead or is critically ill, but this is not enough. What we need to do is to insure the golden goose’s “ability” to lay golden eggs.

But you may ask: I am already covered, right?

Some people may believe they are already covered for the risk of disability. Let’s look at the common misconceptions:

I have a policy that covers me for Total & Permanent Disablement (TPD)
This only covers very severe disability, such as losing a pair of limbs before your insurer pays you. What if a teacher loses her voice and has to quit teaching? This does not meet the definition of TPD, but is sufficient to trigger your disability income payouts till your desired retirement age.

I have a Critical Illness policy
Currently, critical illness insurance providers do not cover diabetes as one of the 37 critical illnesses. What if a pilot is grounded because his diabetic condition affects his vision? Critical illness policies work well to provide a lump sum to cover medical expenses. But it falls short of the real paycheck protection need.

I have personal accident coverage

The weekly income payable from personal accident plans is payable only if the cause of disability is accidental, defined as involuntary and violent. Working disability from illnesses is not covered.

My employer will pay me
Most employers define how long you will receive your salary if you are unable to work. In Singapore, this is often between 1 to 3 months, which will not be sufficient in the case of long-term working disability.

Therefore, it is crucial for all working adults to consider a Disability Income policy that provides for replacement of income in all scenarios of working disability. If a sickness or injury (of any severity) prevents you from working for at least 60 days, it can replace 75% of your earned income, by offering a tax-free cash benefit every month.

What Is A “Deductible” or “Excess”?

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A deductible or excess is something you have on your policy when you have either, Hospital & Surgical coverage or Motor coverage. And its a dollar amount – it could be $500, $1000 or $3,000.

Quite simply put, the deductible is what you are responsible for, before the insurance company pays out anything on your behalf to fix your vehicle or seek medical treatment.

The lower your deductible, the higher your premium is going to be. Conversely, the higher the deductible you have, the lower your premium is going to be. 

Reason is this – you, the driver or the patient, are taking on more risk with a higher deductible. When you have a lower deductible, you are putting more risk on the insurance company. As a result, your premiums are effected in this way.