Do Your Aging Parents Have Enough To Retire?
Some Malaysians are running out of savings soon after retiring. According to the Employees Provident Fund (EPF), many withdrew 70% of their savings and spent the money in less than 30 days.
The fund said members ran out of their EPF savings within three to five years after retiring despite the lifespan of Malaysians increasing to 75 years old.
“More worrying are the cases where retirees withdrew 70% of their savings and spent the money in less than 30 days,” a spokeswoman for the fund was quoted as saying.
EPF went to advise Malaysians, especially those about to retire, to plan their expenditure and manage their finances well, so as not to be left in the lurch during their old age.
Like it or not, retirement is not going to come easy for many of us, what with the rising cost of living. So, what about our parents, then? Do they have enough to retire? Well, for starters, ask yourself these two questions:
Are they neck-deep in debt?
According to the Manulife Investor Sentiment Index, Malaysians rank the highest in Asia in terms of indebtedness. It said although Malaysians rank saving for retirement a top financial priority, its research showed a lack of financial planning.
The survey revealed 68% of Malaysians have debt, the highest proportion of all eight markets surveyed in Asia, more than double the regional average of 33%. The top three causes: living expenses (60%), mortgage (44%) and children’s education (37%).
It said the majority of the debt is long-term with a quarter of those in debt not expecting to be able to pay it off for three years or more.
Education debt is a bane for every middle-income parent. Working parents in Malaysia spend 55% of their salaries on each child to complete tertiary education.
For example, doing medicine at a private university can set a parent back anywhere from RM250,000 to RM333,000. If that parent taps into his or her EPF Account 2 to fund the entire course, he or she will be left short to live during retirement. (We have done calculations for this over here, just scroll to the “Child’s tertiary education” section.)
Then there’s the usual credit card debt. Say, your dad retires with a credit card debt of 10,000 and let’s assume the interest rate is 15%. If he were to pay the minimum, he incurs RM3,158 in interest over 6 years and 11 months.
If you are young and still earning a pay cheque that might not be a big deal, but when you are solely drawing out of your retirement fund, paying RM13,158 in debts is no joke.
Are they in the pink of health?
Malaysia does not rank well when it comes to health: the country has five million smokers and it is the most obese in the region. Among the top five causes of death in Malaysia are coronary heart disease, stroke and cancer.
What’s worse, treating these diseases are expensive. For example, a coronary angioplasty done in a private hospital will set you back RM29,070 on average and a mastectomy can come up to RM10,160 – both are in the five-figure range and they are the norm.
But these are today’s prices. You’ll have to factor in the medical inflation rate or the increase of medical expenses, which is between 10% and 15% every year.
Just to give you a taster of how the inflation rates affect medical care, see the table below:
This doesn’t include post-treatment care which could easily cost six figures for five years. If your parents do not have a comprehensive and adequate health insurance coverage, this amount will have to come out from their retirement fund, or your pocket.
A comprehensive medical plan that includes pre- and post-hospitalisation benefitsIt has no lifetime limit and gives you a high individual annual limit.
Even with health insurance, outpatient treatments are generally not covered by regular health insurance plans.
To top it off, Malaysians are living longer. The average Malaysian is expected to live up to 74.7 years from 72.2, this despite diseases and illnesses. Ironically, one of the reasons is better healthcare.
So, what do you need to do?
First, evaluate your role in your parents’ finances. According to the Credit Counselling and Debt Management Agency (AKPK), when it comes to accumulating debts, young adults often start with education loans, followed by car loans and credit cards.
If you find yourself saddled with any of these, pay them off quickly instead of relying on mummy and daddy to deal with your debts. This applies to situations where you are not on a loan but your parents are paying for your education or car.
For starters, get on some part-time job and bring in the cash. We have written about how ride-sharing and blogging, among others, can help you generate some income, even to the point of financing an MBA and covering your car loan.
So, taking charge of what is yours as early as possible would free up your parents’ cashflow and even rescue their retirement funds.
Second, and this is the hard bit, is to have a sit-down with your parents and talk about the family’s finances.
If your parents don’t have anything in their nest egg, it can be scary, because you may have to support them. And this is why sandwich generation exists. Ideally, you want to encourage them to save but there’s only so much you can do – ultimately, it’s their responsibility.
Introduce AKPK’s Debt Management Programme to them if they need help to renegotiate their debts. This should be done before it’s too late.
Either way, this allows you to know where they stand with their finances. Maybe they need the advice of a financial planner? Or it’s time to rebalance their investment portfolio to match their age and needs?
Regardless of the circumstances, many parents have sacrificed their time and money to fund their children’s endeavours. While this might be a selfless act, it also takes a toll on their finances.
What you should do, at least, is to take ownership of the money they spend on you and try to alleviate that burden by trying to cover the cost yourself.
But what if it is your parents’ bad habits that are affecting your financial life? Then, seek professional help and take measures to protect yourself.