With the pandemic affecting all aspects of our lives thoughts are mainly focused on how we are going to get through this period. Survival is the first instinct that motivates us. Planning comes way down the line in the list of life’s priorities. Nevertheless, we have to convince ourselves that we are going to pull through and if you find you have unwanted spare time on your hands then maybe you can use some of it to plan for what you are going to do when you emerge from the dark tunnel.
The grim news that bombards us every day may send us checking our medical and life insurance policies. But have you spared a thought for how you will cope if you live to 90 and beyond? Unless you have already made an appointment with the Grim Reaper there is every chance that you will be around much longer than you may have expected. But will your savings survive as long as you will? This is a real issue that is going to affect millions.
What is your life expectancy statistically?
Based on the latest United Nations Population Division estimates the following are the ages (rounded) that an average person born today in the selection of countries below can expect to live (highest first):
Japan Male: 82 Female: 88
Singapore Male: 82 Female: 86
United Kingdom Male: 80 Female: 83
United States Male: 77 Female: 82
Indonesia Male: 70 Female: 75
Nigeria Male: 55 Female: 57
Of course when we were born the figures would have been much lower. The figures are projected from birth so they automatically rise as you get older. For example, if you a British male and you have already reached the projected age of 80 it doesn’t mean you should be making an appointment with the undertaker. It means you can now expect to live till say 88 based on the average survival rates of 80-year olds. And if you reach 88 it will move up to 92 and so on.
So basing your financial plans at an earlier age on the projected life expectancy of your fellow nationals would clearly be a mistake. When you are in a savings mode and building up a pension pot you have to strike a balance between ensuring you can enjoy life to the full in retirement yet ensure the money does not run out while you are still alive. Unfortunately millions of pensioners around the world have come face-to-face with this reality.
Short term needs are damaging long term plans
In 2015 the British government foolishly allowed people to access their occupational pension pots at age 55. Prior to gaining the freedom people were generally unable to access them until age 65 but the great benefit was that they had a guaranteed income for life. Many of the pensions were in the form of annuities and there were complaints that due to low interest rates the annuities were not particularly attractive. But they did produce a guaranteed income and a large proportion of people who accessed their freed-up pension early have either spent it or lost it on ill-chosen investments and as a result will have no income in later life from the pension they built up over many years.
Impact of the coronavirus
The situation described above was in play before the pandemic turned the world upside down. Millions are now desperately trying to cope with lost jobs and lost incomes. The situation is worse in countries that do not have significant resources to alleviate the situation. Indonesia is one of them and Bali of course has been hit particularly hard due to its heavy reliance on tourism. It is understandable that people will need to access more than the reserves they put away for a rainy day and may need to dip into investments that were intended for the long term.
One can but hope that the pandemic is brought under control as soon as possible so that normal life and business can resume. Unfortunately this could take several more months but once we get through it we can once again restart planning for the longer term. And this is probably going to mean making short term sacrifices in order to rebuild assets to produce income in retirement.
What about healthcare in old age?
Expats in their younger years for the most part have no problem subscribing to international medical insurance plans. In fact it is absolutely essential to have such cover if you have dependants who rely on your support. But in later years such cover becomes increasingly expensive and some hard decisions have to be made if you plan to spend the rest of your days in Bali. Maintaining international plans is an expensive luxury once you get past 65, unless you anticipate an early need to cover yourself for a serious illness. If you do stop paying into an international plan do try to put the money you save on premiums into a separate account that would aim to directly cover medical expenses.
Returning to your home country where you may be able to access free medical treatment is an obvious option, but may not be practical if your roots are now firmly established in Bali. If you can access the national insurance scheme BPJS it is worth joining although the ambitious scheme is cash-strapped and cannot match the service you would expect with full insurance. Many long term expats have accepted that their lifestyle has to be closer to that of native Balinese if they plan to live their lives out here. Many in fact will live longer and healthier lives than their counterparts in their home countries, despite the latter’s access to advanced medical facilities.
What other considerations are there?
The large house you enjoy in your younger days may no longer be practical in old age. The location may no longer be convenient if you stop driving a car or it may have steps or features that make it unsuitable once you lose your athletic abilities. I have personal experience of visiting an elderly couple who lived in an idyllic villa on three levels on a slope with a panoramic view of a bay. They had purchased the villa some 30 years previously but now struggled to get from one floor to another. They realised they should move but the property market was unfavourable and there were no buyers at an acceptable price.
The moral of this story is that you need to anticipate any need to move home in good time.
While a property can be difficult to sell in a hurry, financial investments are far more liquid and can generally be accessed in weeks if not days. But it is important to separate investments into short, medium and long term assets. This will ensure easy access to cash but also ensure long term growth. A subject I have covered at length and will come back to again.
A final thought
You can’t take your wealth with you when you finally depart this world. If you do not have family or friends to whom to leave your remaining assets then you can adopt one concept of perfect financial planning: live life to the full till your money runs out on the day you die and your cheque to the undertaker bounces. But don’t contact me for advice the day after if you change your mind!
Colin Bloodworth, Chartered Member of the Chartered Institute for Securities and Investment (UK), has spent over 20 years in Indonesia.
He is based in Jakarta but visits Bali regularly. If you have any questions on this article or related topics you can contact at : firstname.lastname@example.org or +62 21 2598 5087.
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Copyright © 2019 Colin Bloodworth