How to plan for retirement when ill-health strikes

elderly woman suffering from illness

Retirement blogger Don Ezra received a sobering note from a reader, who wrote: “Hi! You always provide great advice [on retirement and planning] and a clear point of view. I am wondering what you suggest for people who have ‘uncertainty’ surrounding their health. I am about to retire. I don’t think I have enough to retire but I want to enjoy life while my health still allows it. However, at 51, and having a rare disease that left me paralysed for two years, what is the use of saving money for age 60 and beyond? Any thoughts or suggestions?”

This is his response.


I start with four ‘big picture’ thoughts, before getting to specifics.

My first thought is that we’re all likely to react differently when facing these circumstances, so there’s no ‘right’ approach. I can only suggest things to think about, questions we can ask ourselves, to help us come to a course of action that works for each of us separately.

My second thought is that the reader may not be the only person affected by those circumstances. There may be a partner and/or family also affected. Actions chosen will then also affect them, and that needs to be taken into account.

My third thought is that there are (at least) a couple of dimensions that are relevant. One is psychological – how to live life; the other is financial – how to afford life.

My fourth thought is that for those of us lucky enough not to be facing these circumstances, there are lessons for us to prepare in advance in case we do face them one day.

Now let’s get to the questions.

In a way the most important one is the most difficult to ask. It’s: how long have I got? There probably isn’t a definite answer (I hope!), but some idea of the likely lifespan and the likely state of health during that lifespan would form a basis for planning. And without any idea of the range of possible answers to the question, any actions take place in a sort of hit-or-miss context, virtually on a day-to-day footing.

The answer then becomes the basis for further decisions, for both the psychological and financial dimensions.

One more ‘big principle’ that would underlie my approach is a lesson I learnt a long time ago, over many years of interacting with major pension plans.

It’s simple: “First survive, then thrive.” By that I mean it’s important to lay down a base that enables you to do what’s essential for survival, both psychological and financial. Once that’s in place, you then have the freedom to do what makes you feel that you are thriving and happy and successful. If you don’t do that, you may one day suddenly find that your survival is threatened by something you could have anticipated but didn’t, and the opportunity to thrive has gone.

So that suggests four sets of questions: how to survive financially, thrive financially, survive psychologically and thrive psychologically.

To survive financially

What are your assets, and what income can you look forward to over your expected future lifespan? For a planning horizon I’d add a few years to whatever time estimate you’re given, partly for safety and partly for hope; and by ‘your’ assets and income I also mean the assets and income from your partner and/or family. This establishes the financial base.

And it permits at least a first estimate of an answer to the question: is there enough for my planning horizon?

The other is: is there more than enough, so that I can consider both my own thriving and leaving something to those who survive me?

Very often, these levels are referred to as needs (to survive) and wants (to thrive).

In answering this question, it may be useful to talk to a financial adviser about potential benefits governments make available in the event of health impairment, or the possibility of drawing on future benefits early for the same reason, or the option to ‘unlock’ some locked-in assets. It may also be that early retirement has a negative impact, if it causes disability benefits to be reduced or cease. And of course you may have forms of coverage through your employer or personally.

It is probably useful to also seek tax advice, because it may be that some of these cash flows are taxable if taken in one form and non-taxable if taken in a different form.

All these topics should give you a base to decide if there’s enough for you to survive financially for your planning horizon. If there is, you may still have the option of continuing to work and save. If there isn’t, continuing may be not so much an option as a necessity. Regardless, you may want to consider if you have another dimension of choice: continuing your current work, doing something part-time or freelancing.

To thrive financially

When you’ve done that analysis and decided about future work and saving, you may now have the luxury of thinking about what to do with the surplus after what’s required for your needs. And essentially there are two beneficiaries from any surplus: you and your partner and/or family.

I have no guidance there. Personal circumstances and feelings will guide each of us differently. But it should be a comfort simply to know that you’re in a thriving situation.

To survive psychologically

I think of this as involving both physical and mental health.

As far as physical health is concerned, this is for your doctor to advise on. When I go for my annual medical, my doctor reminds me that we’re a team and plan together – but I’m the only one who can carry out the plan.

For mental health, it may be that you’re fine on your own. For my reader, the mere fact of emailing me with that question suggests to me that he/she is in pretty good shape mentally – better than I would have been in the circumstances – but I’m not a professional, and my opinion carries no weight.

If you need mental support, your partner and/or family typically are the first to turn to. In addition, there are often medical, social and government sources to turn to.

To thrive psychologically

This is where the fun comes into consideration! And I hope that, when you get to this point, you’ve checked the previous boxes and are eager to find as much enjoyment as possible in your life.

In fact, the answers to the financial questions, and those on mental and physical health, will at least partially answer the scope that you have for enjoyment. In which case, the big issue becomes one of deciding and prioritising what to do.

Consider George Kinder’s three big successive questions. You have all the money you need – how would you live your life? You’ve just been told you have five to 10 years to live – how would you change your life? You’ve just been told you have 24 hours to live – what are your regrets? Powerful things to take your time thinking about, leading to the identification and prioritisation of what gives you happiness.

An idea from Stephen Covey is also useful. He asks you to think about your memorial service, and what you would like a family member, a friend, a fellow worker and a member of your community to say about you. How does this suggest you should live your life?

It made me realise that the legacy I leave that’s most important to me is my emotional legacy – how people will honestly think about me after I’m gone – far more important to me than any financial legacy.

I don’t know if all of that is any help to my reader or to you, if you find yourself in that situation. I hope it at least starts you thinking, and reaching conclusions about the questions exercises periodically, perhaps every five years or when there’s a big change in your life. You’ll feel much more in control of who you are.

Have you had to rethink your retirement or retirement plans due to ill-health? What advice can you add to this conversation? Share your thoughts in the comments section below.

Also read: Why you now need to draw down more of your super

Don Ezra is a former actuary and was co-chair of Global Consulting at Russell Investments. Today, he is happily retired, writing blog posts on his website

This edited article is republished with permission. The original is here.

Written by Don Ezra

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