Whenever retirement planning is discussed, it is common to assume expenses as what you need to spend on a day to day basis to live your life with inflation factored in. Very often, we assume that most of our financial commitments like housing and insurance are completed and even if they are not, they would be manageable.
One common blind spot most people planning for retirement tend to overlook is the increasing hospitalisation insurance premiums regardless whether you are covered up to restructured hospital A ward or private hospitals.
In this article, I strive to highlight this issue and provide a clearer explanation why you should care.
Hospitalisation insurance is the most basic form of protection coverage
For starters, hospitalisation insurance is the first layer of financial defence when we fall ill. Many major and minor illness begins with us getting hospitalised and a hospitalisation insurance primary purpose is to provide coverage for hospitalisation bills.
Most people in Singapore have a hospitalisation insurance cover because the basic plans for private insurer's hospitalisation coverage for Wards B1 or A in restructured hospitals can be paid for using Medisave potentially up to 60 without involving cash payments (at the time of this article).
Some of us are also paying for private hospitalisation coverage as well as riders to cover deductibles and co-insurance.
In short, I think it's established that hospitalisation insurance is important and the older you get, the more important it becomes.
Integrated Shield Plan Premiums Increase As We Age
Most of us should also know that our Integrated Shield Plans (private insurer's hospitalisation insurance plans) increase in price as we get older. This is regardless of whether we are covered till B1 Restructured Hospital Wards, A Class Restructured Hospital Wards or Private Hospital Wards. If you don't know this (hopefully you simply forgot), your advisor didn't do his/her job explaining what you bought clearly.
Why should we be concern?
For most of us paying for a main plan (private or restructured hospital coverage) with cash rider to cover for deductibles and co-insurance who are perhaps in our 20s or 30s, our payment structure may appear something like this:
Medisave covers the main plan bills fully and $XXX for riders.
Of course, this depends on which insurer you are covered with as their price differs and some insurers require their clients to pay a portion of their main plan premiums in cash as early as their 30s. This is due to the price of the main plan exceeding the Medisave withdrawal limits. The excess would be paid in cash.
So for most of us who still hasn't felt the true impact of paying a significant portion of premiums for our main hospitalisation plan and rider, we wouldn't think much about medical inflation and insurance cost after retirement.
In the image above, it's a simple illustration of how your premium table of your Integrated Shield plan looks like (regardless of insurer). Basically, if you look at your own shield plan table, it'll reflect an increase in premiums as you age. When the cost of your shield plan exceeds the additional withdrawal limits of Medisave, you need to pay for the exceeded amount in cash. Now some of us in our 30s and older will notice this if we bought coverage that entitles us to go to both private and restructured hospitals because that is when some insurers shield plans' premiums exceed the annual withdrawal limit. However, in our earlier years, the exceeded amount isn't significant hence we may be pretty indifferent about the cost.
The hospitalisation insurance cost during retirement
The major concern comes when we reach our retirement years and our hospitalisation insurance coverage cost upwards of $1000 just for the main plan (private hospitalisation insurance coverage). On top of which, the rider would also cost upwards of $1000 for private hospitalisation coverage. That is also the age where we really won't wish to compromise on our medical coverage because the odds of an old person utilizing the insurance cover is logically higher than a younger person.
During our research, we compared across all insurers current price list. To provide some context on what we mean by the significance of premium increase, we look at 2 random insurers.
If we look at the above image, Willy has an integrated shield plan covered for private hospitalisation with insurer A and based on his current premium table (assuming he just bought based on the prevailing plan), he would have to set aside $170,433 in cash (main plan + rider) assuming his Medisave is sufficient to cover for the balance of his main plan. He would need to set aside more funds if his Medisave would have a shortfall. This illustration assumes Willy lives till age 90.
As for Jason, if he has a similar plan as Willy under Insurer B, he would have to set aside $188,994 in cash (main plan + rider) assuming his Medisave is adequate to cover the remaining cost of the main plan. Again he needs to set aside more funds if his Medisave is insufficient. Again it is assumed Jason lives till age 90.
This example goes with the assumption premiums will not increase further. If it does, the cash required to be set aside would be more.
What does this mean to us?
Essentially, the point of this illustration is to highlight the rising shield plan cost which a lot of people tend to overlook when planning for their retirement. A typical retirement planning entails calculating lifestyle expenses. The assumptions is that insurance is fully paid for or if they remain in existence, the premiums are level. Clearly, the hospitalisation insurance cost isn't level.
This means that we need to make provisions for this cost if we do not wish to downgrade our quality of coverage when we retire. Given that the amount required is a 6 figure sum, we should save for it and not take the issue for granted.
Why can't we downgrade our plans to restructured hospital coverage?
Firstly, downgrading can be one solution to deal with rising shield plan covering private hospitalisation cost. However, this would also mean compromising on your quality of coverage during retirement.
In my opinion, if this isn't your original lifestyle when you are working, it's no different from saying that I'll cut down on my restaurant visits once I stopped work because I didn't save enough money.
Frankly, I'm not sure how happy one will be when they truly need to utilize the coverage. The issue with cutting back on restaurants or travelling is a matter of habits adjustment. However, it's a different story when one is ill.
Sometimes when I'm ill at home (meaning that it's not serious till I need hospitalisation), I already feel extremely uncomfortable and want the discomfort to go away as soon as possible. Imagine a serious condition like cancer which requires chemotherapy treatment or the need to get immediate attention due to heart related issues, and you need to wait for your turn at a restructured hospital or when there is insufficient beds... I'm not sure how happy one will be when this is something we have to go through during old age.
So while we can downgrade our hospitalisation coverage anytime, it may not really be what we want if we enjoyed the peace of mind throughout our income generating years.
What if we are already on the restructured hospital coverage? Should we be concerned?
Basically being on a lower cost plan doesn't take away the need to acknowledge that we need to cater for an increasing hospitalisation insurance cost.
If we really want to delve into the figures, Willy with the same insurer on a restructured hospital coverage would still need to set aside $66,650 in total for the cash portion of his shield plan with rider covering restructured hospitals. Jason would need about $70,425 in cash for his insurer.
Again, this is with the assumption that the premiums no longer increase.
How should we cater for this during retirement?
Awareness is the first step to solving any problems. Once we become aware of the need to make provisions for this component during our retirement planning, we should simply cater for it just like how we cater for our utilities, our food expenses and our travels.
I'll suggest creating a budget of ALL your existing expenses. Put in the expected cost of your shield plan for your later years. Calculate the total expenses you need and multiply it according to your preferred inflation rate. Then you can use whichever strategy you originally intended for retirement to factor in this new cost.
Read also: 5 retirement strategies common in Singapore
After reading this article, you might be keen to have a discussion on retirement planning with me. You can reach me by dropping me a message.
Be sure to share the article if you feel this information is helpful. You will enable a lot more people to learn about retirement planning. About Janice I specialize in portfolio optimization (ensuring you get maximum value for every dollar you put in) and retirement planning. I am also building a team of financial advisors who are committed to help responsible individuals attain their goals without misallocating their resources. Do reach out if you would like to explore a career with me. Clients look for me primarily to outsource their retirement planning needs so that they can focus on other aspects of life that interests them. Many of whom are very good in earning their incomes in their respective professions and wish to ensure their monies continue to work harder while they focus on what they are good at. Refer to client testimonials here. I've helped many clients who are referred to me reduce the costs they are paying for their insurance or help provide solutions when they deem they are stuck with huge commitments bought when they were younger but unsuitable for their present life stages. You can reach me at 94313076 or my social media accounts on Facebook and Instagram. Disclaimer: The content created are based on my personal opinions and may not be representative to everyone or any organisation. If you have any doubts or queries pertaining to insurance or investment, please seek professional advice from a trusted adviser in an official setting. You may also reach out to me if you do not have a present adviser using the message box under 'Let's Talk'.
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