“We tend to put risk planning and investment planning neatly into separate boxes when, in reality, they do the same thing,” said Toerien.
“Risk planning is about protecting yourself from the financial consequences of possible misfortune, so that you are able to accumulate wealth. Investment planning is about protecting and growing that wealth so that you can continue to earn an income when retired. In many ways, they’re both about protecting your income,” Toerien added.
This myth is based on the idea that you will earn a continuous, steadily-increasing stream of income until retirement.
“The reality, however, is that you have a 70% chance of having an injury or illness during your working career, which could affect your ability to earn an income. So, not only is there a high probability that your income will be interrupted, but there is no way to guarantee that it will increase steadily year-on-year,” the experts explained.
Myth 2: I know exactly how much I need for retirement
In fact, we grossly underestimate how much we need. According to the experts we often don’t take costs like rising medical expenses after retirement into account. Which land us in financial difficulty.
Myth 3: I will retire at 65 and live until 90
While this to some may be a comforting thought, the reality is that most people can’t afford to retire at age 65 or simply don’t want to, according to the experts. Individuals are also living longer, healthier lives with higher life expectancy, which means that post-retirement money needs to last longer.
So, what should you be doing?
Toerien offered a solution through FMI’s HouseViewTM approach, which is based on the belief that your greatest asset is your ability to earn an income and that all insurance benefits should be designed to protect this.
“The best solution is a life insurance product that provides a combination of monthly income and lump sum benefits in the event of temporary or long-term disability, critical illness or death. The income benefits are ideally suited to meet your ongoing monthly expenses, while the lump sum benefits provide for any once-off costs like settling large debts or estate duty.
“If one recognises that income benefits are a much better fit to the way you approach your life and that they are much cheaper, it will affect the way you select your risk benefits,” said Toerien.