Insurance is not only for debts and liabilities; it can also ensure an income stream.
The big question is how long your money will last after your claim has been paid out. Think of it this way; if you and your partner each bring home $50,000 per annum - the worst case scenario happened that one of you passed away or could no longer work due to illness - could you maintain your lifestyle less one income?
The Formula:
Year #1:
Starting Capital (initial claim amount) - 10% = a good amount to live on for a year.
Then:
Remaining Capital + 4% average return on investment in NZ = Remaining Capital
Year #2 and beyond:
Use the same equation but add 3% to your personal annual payment to account for inflation.
While this may seem like a small decrease follow the graph below and see how quickly it reduces over time. You can use any amount and the result is the same……
|
Year |
Starting Capital |
CPI Adjusted |
Remaining Capital |
Plus 4% investment after tax |
Remaining Capital |
|
|
$ in the bank - |
what you spend = |
what is left + |
Interest earned = |
year end balance |
|
1 |
$500,000 |
$ 50,000 |
$ 450,000 |
$ 18,000 |
$ 468,000 |
|
2 |
$468,000 |
$ 51,500 |
$ 416,500 |
$ 16,660 |
$ 433,160 |
|
3 |
$433,160 |
$ 53,045 |
$ 380,115 |
$ 15,205 |
$ 395,320 |
|
4 |
$395,320 |
$ 54,636 |
$ 340,683 |
$ 13,627 |
$ 354,311 |
|
5 |
$354,311 |
$ 56,275 |
$ 298,035 |
$ 11,921 |
$ 309,957 |
|
6 |
$309,957 |
$ 57,964 |
$ 251,993 |
$ 10,080 |
$ 262,073 |
|
7 |
$262,073 |
$ 59,703 |
$ 202,370 |
$ 8,095 |
$ 210,465 |
|
8 |
$210,465 |
$ 61,494 |
$ 148,971 |
$ 5,959 |
$ 154,930 |
|
9 |
$154,930 |
$ 63,339 |
$ 91,591 |
$ 3,664 |
$ 95,255 |
|
10 |
$ 95,255 |
$ 65,239 |
$ 30,016 |
$ 1,201 |
$ 31,217 |
|
11 |
$ 31,217 |
$ 67,196 |
-$ 35,979 |
-$ 1,439 |
-$ 37,418 |
If you're not sure if you've got enough life insurance, contact us for a review of your cover.