Build a healthcare cost line for the years before and after your payout age and add it to your model.
Priya stops work at 50 and starts her CPF LIFE payouts at 65. Since lesson 1.4 her spending base has carried healthcare as a flat S$2,300 a year at every age (an example figure).
A flat figure like this is wrong in a way you can predict. Premiums step up by age band, so a figure that fits your fifties is too low for your seventies. MediSave pays only part of your premiums, riders are paid entirely in cash, and outpatient costs grow as you get older. You can replace the flat line with figures built from your insurer's real premium tables, split into the part MediSave can pay and the part you pay in cash. It takes about thirty minutes. Have two things open: the insurer's premium table from lesson 7.2 and your model from lesson 4.4.
Open a new tab in your model and make one row for each five-year age band. Start at your stopping age and go to at least 85.
In each row, enter the premiums from the insurer's table at today's prices. Include your shield plan, any rider, and CareShield Life or any supplement if you still pay its premiums at that age. Use the premium for the age at the start of the band. Premiums also change within a band, but the band figure is close enough for planning.
Lesson 7.2 suggested you decide in advance when to drop a rider. If you have picked that age, leave the rider out from that band onward.
Premiums are only part of your healthcare spending, so add a separate column for other costs. These cover GP visits, specialist visits, dental, optical, regular medication, health screening, and the uninsured part of hospital bills, such as the deductible and co-payment if you have no rider.
Other costs are harder to look up than premiums. Start with what you spend now. Then add back what your employer currently pays, using the list you made in lesson 7.1. Raise the figure a little from each band to the next. A figure you have thought about is more useful for planning than a precise-looking one you made up.
Next, divide each band's costs between two columns. The MediSave column can hold MediShield Life premiums and the private part of a shield plan up to the Additional Withdrawal Limit. The cash column holds riders, the private part of a shield plan above the Additional Withdrawal Limit, and the outpatient and dental costs that MediSave does not cover. MediSave can pay for some outpatient care, covering treatment for chronic conditions, vaccinations and health screenings, so those costs can go in the MediSave column. Check the Ministry of Health (MOH) website for what is covered and the current limits.
Once your contributions stop, a MediSave balance that pays premiums every year gets smaller. Add up the MediSave column across all the years and compare the total with what your account is likely to hold. If the total is higher, move the excess into the cash column. Only the cash column goes into your spending base.
Priya's sheet runs from 50 to 84. Her yearly cash cost includes the cash part of her shield plan, her rider until she drops it at 70, and her other out-of-pocket costs:
50 to 54: S$2,800 55 to 59: S$3,300 60 to 64: S$4,000 65 to 69: S$5,100 70 to 74: S$4,600, lower than the band before because her rider ends at 70 75 to 79: S$5,600 80 to 84: S$6,800
Her MediSave column rises from S$1,000 a year at 50 to S$3,200 a year at 80. She writes this down as a question to check against her MediSave balance.
Work out two averages of the cash column at today's prices. One covers the bands before your payout age and the other covers the bands after it. Each average replaces the old healthcare line for its own period.
Priya's three bands before 65 add up to S$2,800 + S$3,300 + S$4,000 = S$10,100. Divided by 3, that comes to about S$3,367 a year. Her four bands from 65 add up to S$5,100 + S$4,600 + S$5,600 + S$6,800 = S$22,100. Divided by 4, that comes to about S$5,525 a year. She rounds them up to S$3,500 and S$6,000, which gives her a margin if the insurer revises its table. You can round your own averages up for the same reason.
Her healthcare line before 65 rises by S$3,500 minus S$2,300 = S$1,200, so her spending before 65 becomes S$45,200. After 65 it rises by S$6,000 minus S$2,300 = S$3,700, so her spending after 65 becomes S$47,700.
Put the new healthcare lines into your spending base, rebuild your two-part number from lesson 3.4, and rerun your model from lesson 4.4.
Priya's bridge runs fifteen years, from 50 to 65, at her spending before payouts: fifteen years at S$45,200 = S$678,000. After her payouts start, her gap is S$47,700 minus her CPF LIFE payout of S$16,800 = S$30,900 a year. At a 3.5% withdrawal rate, S$30,900 divided by 3.5% is about S$882,857. Her new two-part number is S$678,000 + S$882,857 = about S$1,560,857. Her old number was S$1,437,143, so the new number is about S$123,714 higher.
She reruns her model at a 4% real return. Her balance first passes the new target at age 51, one year later than before. Healthcare has added about S$124,000 to her number and about one year to her date.
Most of the increase comes from the later years, when premiums are highest and the portfolio has to cover the gap above CPF LIFE for the rest of her life. Her early years change less. Your own result may be larger or smaller, depending on your plan, your riders and how early you stop.
When you have finished, your healthcare line should come from the insurer's tables, be split into MediSave and cash, and differ before and after your payout age. Check that your sheet has one row per five-year band to at least 85, with premiums and other costs at today's prices, a MediSave column, a cash column, two cash averages and a note on your MediSave balance. Your model should now use the new line. Keep your before and after figures side by side, for both the number and the date, because the activity asks you to report how much they changed.
Fill in the healthcare cost sheet, then write down how much it moved your two-part number and your target year.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).