Many people say they don’t want to live beyond the age of 80, but many of us will not only see 80, but 90 or 100, Kate Brown, Fiscal Private Client Service, says.
The risk of outliving your savings highlights the need for an Integrated Financial Plan.
Integrated Financial Planning is about more than money management, Brown says. “It’s an attempt to convey the idea that the purpose of Financial Planning is to look at your life, think about the transitions you are going to face, and make a connection between the way you seek to live and your resources – not just your Financial Resources.”
It is about helping you to be clear about the consequences of your lifestyle choices. It includes helping you to review, and possibly modify, some of these choices to make informed decisions about allocating your Resources, both how you spend and invest them, and understand the consequences, not only for you, but for those around you, she says.
The choices you make daily will have a significant effect on the choices open to you as you get older, particularly if your Financial or Family Resources are very limited, Brown says.
“You can choose to be clear about your circumstances, or you can sail through a fog of hope, not wanting to think about when your ship might be dashed on the rocks of high medical expenses, or simply not wanting to face the possibility that you will spend all your money – and still be alive.
“On whom will you become dependent if you run out of money? Are these people aware that this responsibility may fall on their shoulders? And are they preparing for it? Will your family co-operate, or will there be discord as you need more and more help?”
For those without children or close family who can help, or whose family relationships are fractured, this can be a very serious issue, she says.
“Only once you have worked out a plan and know what level of return you require on your Assets, what cash flows you need and when, and the level of risk and volatility you are willing and able to tolerate, can you decide how your capital should be invested and managed and by whom.”
Financial Planning is not the same as Investment Management, Brown says.
The best way to start developing your Financial Plan is by telling your story, Brown says.
“For someone to guide you, you need to describe your family circumstances and share what is important to you. Telling your story is a powerful first step to clarifying your financial and emotional needs,” she says.
Your story helps give you a clearer understanding of the transitions you are facing and have yet to face, including the implications from an emotional and financial point of view. It also helps you to become clearer about your priorities.
Brown says it is important to write down:
- What you have – all your Assets, Debts and Income; what you need to meet your objectives – your Monthly and Annual cash flow now and an estimate of how this may change (possibly increase) as you get older.
- A list of additional expenses – Capital Expenditure, such as medical costs, funeral and other costs associated with death, particularly Executors’ Fees, the cost of replacing cars, and travel costs.
- Your objectives. Objectives that many people have in common include: being able to live financially independently of your children or other family members; being able to live physically independently of your children; being able to see or visit the people who matter most to you; being able to afford medical care and other types of care. All of these objectives have financial implications.
You can have other objectives that may not have financial consequences, Brown says.
“We know a couple who have one adult child. One of their objectives is to remain interesting to their son. In other words, they would like him to want to visit and spend time with them, not just do it out of a sense of duty. This is a more positive way of expressing a desire not to become a burden to him.”
Once you are clear about your plan, you need to calculate the return you require on your Capital if you are to have a good prospect of being able to fund all the activities and expenses listed in your plan, Brown says. You may require professional assistance to do this.
Your plan should not be predicated on simply trying to earn the highest return in the shortest time; that can be the route to misery and disaster, Brown says.
“Ensure you have a clear sense of how much risk you need to take, and only take more than that as a conscious, informed decision.”
Having worked out your Plan and the Investment Return you require, it remains for you to order your affairs, Brown says.
“This means ensuring that your Will is up to date and the beneficiary nominations on any Retirement Funds or Annuities, Life Policies and Endowments are as they should be and dovetail appropriately with the terms of your Will.”
An Estate Planning exercise can establish if there will be sufficient cash (or liquidity) in your Estate when you die and whether you have provided appropriately for those who remain behind, Brown says.
There needs to be sufficient liquidity to pay funeral and other death-related expenses, settle your debts, pay all taxes due and the Executor’s Fees, she says.
“Remember, it is a kindness to those you love to ensure that your affairs are in order at any given time. This is another reminder that your integrated plan is not just about you.”
If you need to reconsider the terms of your Will or to check that your wishes can be put into effect, a qualified Financial Planner working in conjunction with an Attorney who specialises in this area of Law should be able to guide you, Brown says.
She recommends you use someone who not only drafts Wills, but also winds up Estates – “someone who bears the consequences of their own drafting”.
“I beg you not to cut and paste from someone else’s will and hope that all will be well.”
THE COSTS OF AGE-RELATED AILMENTS
It takes courage to think about the implications of living to be very old, Kate Brown says. The cost of mishaps and ailments that afflict old people can be devastating, financially and emotionally.
Three pertinent ones are falls, deafness and incontinence, Brown says.
Falls among the elderly are a major public health issue, Brown says. “As we get older, we are increasingly at risk of falling. In addition to the cost of medical treatment, perhaps the greater cost is the potential erosion of quality of life. The most important fall to avoid is the first one,” she says.
There is a lot you can do to reduce the risk of falling. Stanford University’s Farewell to Falls programme covers some of the key areas, such as managing your medication and modifying your home. These will come at a cost, Brown says.
Medical Management encompasses a medication review, checking your vision and improving your posture and gait, Brown says.
“As people age, they are often prescribed more and more drugs. If you are taking two medications that cause drowsiness as well as a sleeping pill at night, you can expect not to be so alert during the day,” Brown says. Review how your medications may be interacting with each other.
Having cataracts increases the risk of a fall, she says. If you have cataracts, don’t delay in seeking medical advice.
Younger people are generally fitter and stronger than older people and can pull themselves up before they fall. Shortened and weak muscles and poor posture affect your ability to balance or save yourself from falling, Brown says. This means that being physically active is important – at any age, Brown says. “If you are not active, it’s never too late to start.”
Modifying your home or any environment in which you spend time can also help prevent a fall. “Ensure your home is not full of hazards which can increase the likelihood of you falling,” she says.
Deafness can be extremely socially isolating, yet some people refuse to have a hearing aid, Brown says. But learning how to use a hearing aid is not easy, she says.
“An ear-nose-and-throat specialist put it to me that ‘a hearing aid is not a radio’. It doesn’t broadcast what you want to hear. It’s an amplifier’.” This explains why some people who wear hearing aids take them out when they’re eating. “It amplifies all the sounds, including your chewing. So you have to learn how to use an aid and learn again how to discriminate.”
A person with normal hearing is able to discriminate all the time. For example, when you go to a concert, you can concentrate on certain instruments and they will come to the fore, she says. The ability to discriminate tends to decrease with age and hearing impairment.
Choosing not to use a hearing aid can make you difficult, even exasperating, to live with. So too can choosing not to hear as well as you could, Brown says.
“When you can’t hear me, I tend to raise my voice and my body language is likely to convey some aggression, which can result in tension and hurt feelings.”
Assume that by the age of 80 you are starting to go deaf. Hearing aids generally last between five and seven years and then need to be replaced, Brown says.
“You may be fortunate and find that an aid costing R15 000 works well for you. So, replacing one every five years may mean that in your lifetime you buy three aids, costing a total of R45 000 in today’s money. Double that if you need aids in both ears.
“But if you want hi-fi quality hearing aids, you may pay as much as R60 000 to R65 000 . Such aids allow you to adjust the area of amplification. So in the concert hall you will set it to concentrate in the direction of the orchestra. It will not concentrate on the person in the row behind you who is coughing. An inexpensive aid would not discriminate between the two.”
Brown says she has incorporated in her own plan an amount of R130 000, for aids in both ears, every five years starting from the age of 80. “As I am in danger of living to be 100, I may need four sets, which gives me a total of R520 000.”
She says this links to the idea of opportunity cost: “I would rather be able to afford the best hearing aids than drive a newer, more expensive car. And I may decide to work longer in order to build more capital for my later years. These are choices I am taking now.”
Incontinence is a subject generally not spoken about, yet it is likely to affect anyone who lives to be very old, Brown says.
There are many things that cause incontinence, and most could be put down to bad luck, she says. One cause – weak pelvic floor muscles – you can do something about, through special exercises.
If you need four pads a day to manage incontinence and you need these from the age of 85 and you live another 10 years, you could spend between R40 000 and R50 000 in today’s money on pads alone, Brown says.
She says the choices you make daily have consequences for your health, your emotional well being, and your Financial wellbeing.
“Think carefully about what you could or should be doing now in order to help you live as well as you can, as long as you live.”
(By Angelique Arde)