MY wife carries around a little pair of scissors in her bag. Not so much as a weapon for self-defence, but to cut food down to size to feed my young son. Early this week, while she was snipping at a bowl of noodles at our regular breakfast place, the restaurant owner came over and shared a touching story.
Last Mother’s Day weekend, a couple with an elderly lady (presumably the mother of the man) dined at her restaurant. They walked the elderly lady slowly to the shop, settled her and placed their orders. When food was served, the man promptly whipped out a pair of scissors to cut the food to bite-size pieces for his mother. It was certainly a touching sight to behold.
We start our lives as defenceless babies, totally dependent on people who brought us into the world. Although we gain independence as we mature, as we age many are likely to spend their last days cared for by those they had brought up. It struck an emotional cord in me.
I recalled the story of a recent blockbluster – that of a man who was born old and gradually grew younger before dying as a baby. The final scene was especially touching. The protagonist dies and closes his eyes as if going to sleep, and his true love cradles him in her arms. He was a baby and she an elderly woman. The elderly, like young children, need as much care and love.
We all hope to live to a ripe old age with today’s medical advancement. But our sedentary lifestyle and not always healthy diet could also mean that many may live with impaired health for various lengths of time. Moreover, when you retire, everyday is like a weekend. And chances are we might spend more when we retire than when we are working (typically we do spend more during weekends than weekdays).
Hence one possible scenario we may face is that we could outlive our retirement funds!
These are forgone conclusions – we die, we get sick and we may live longer than expected! Yet, I realise that many people are inadequately prepared for such a definitive outcome. Here’s my take:
(1) Death is already emotionally draining and traumatising enough that it should also not be financially depleting. When there are loved ones relying on us for financial support, we must be able to provide sufficiently. What they need is about equal to at least 3-5 years of their expenses. One hopes that within that period, their lives would adjust to the world without the breadwinner. Do you have that amount set aside if death befalls? Be conscious of outstanding liabilities such as home loans, car loans, etc.
(2) Illnesses may result in more prolong pain in many aspects too. This is actually the “worse-off” situation because expenditures tend to go up while income might be lost. How much buffer is therefore needed? My sense is in the order of “hundreds of thousands”. A quick benchmark is to look at the amount needed to cope with critical illnesses such as heart failure, kidney failure, cancer, stroke, etc. Death is not always immediate, and it is possible to survive years after in an invalid or disabled state. And perhaps domestic help is needed too. So it’s not surprising that hundreds of thousands are needed for the ongoing care and medication. Can you support such additional costs?
(3) Running out of money? Possible, but should not be the case if one plans properly. We all must have buffers. Life expectancy is estimated at 75 years old. My grandmother lived till 97 or 22 years beyond the average! Buffers can come in the form of legacy that one had intended to leave to their children. If one plans to leave a legacy to children, then there’s asset value to unlock cashflow. It is also common for one to have a reasonably valuable property that one can explore unlocking the value either by moving to a smaller place or re-mortgaging if possible. Could you support yourself beyond the life expectancy?
Here’s a guide on insurance products:
·Protection against contingency is well documented through insurance. The purest form is term insurance/protection – generally cheap, and targeted. In some cases, term protection may be restricted in renewal, which is a key consideration. Guaranteed renewal is important as you don’t want to be uninsurable when you need it most. Usually traditional life plan is needed as it assures continual insurability.
·Savings plans are the other solution and there are many approaches. Life insurance plans are generally a combination of protection and savings. There are other schemes that skew more towards savings such as endowment policies. In some cases, elements of investments can be bundled too for more aggressive asset growth plans.
·Annuity is popular in more developed countries. Buying an annuity assures the person of a fixed amount of cashflow on a regular basis, usually till one kicks the bucket.
Remember, products are merely tools to meet one’s ultimate needs. When it comes to insurance, it usually revolves around these three elements – Protection, Savings and Cashflow. My advice is to first identify your needs, then it would be easier to identify if the products meet your needs.
I believe in planning for old age, my own and my loved ones, as I would do for my children’s future. Life does come to a full circle.
·Tay is senior vice-president and senior head of UOB’s personal financial services division.