Blue Zone 2.0: Living to be 100, part 4

Singaporeans are living longer, and the number of centenarians (people living to 100) is likely to increase over the decades. With the blessing of longevity, however, comes the risk of outliving our savings. As you probably know, it’s tough to survive for even a few months without working, let alone for 35+ years post-retirement. As such, it’s important to have contingency plans, and ways to cope (financially) with our longer lifespan. While each individual is different, here are a few common techniques you can apply:

1. A higher percentage of fixed-income assets as you age
At the early stages of our career, wealth growth is a priority, as we need to meet or beat inflation rates; this is why the portfolio of a 25+ year old may feature higher risk, higher return products such as actively managed funds (possibly in the form of trust funds or Investment Linked Policies), or mainly equity-related assets.

However, as we age, it becomes more important to protect the wealth we’ve already accrued. Once you’re 80+ years old, for example, you have a shorter horizon to recover from market downturns; and your methods of generating income - to replace losses - are much more limited.

This is why it’s common advice to shift your portfolio assets to fixed income products, such as bonds, as you get older. One common rule of thumb, for instance, is to have at least 40% of your portfolio in bonds by the time you’re 50 years old. For someone reaching 100, it could make sense to have a portfolio that’s entirely composed of fixed-income products, such as annuities, perpetual income bonds (perps), or Singapore government bonds. These financial products are focused on wealth preservation, which at an advanced age becomes more important than issues like inflation.

The tricky part is knowing when and how to gradually reallocate your assets toward fixed income products. As everyone’s life situation is different, this may require the aid of a financial representative, who can review your specific needs.

2. Diversification and multiple streams of income
Over a very long term period, such as 30 or 40 years, it’s hard to predict the eventual outcome of any financial asset. 40 years ago, for example, Kodak used to be a blue chip stock; and no one would have predicted the fall of Lehman Brothers.

The same can be said of any so-called “infallible” assets today, be it a blue chip stock on the SGX, or the perennial Singaporean favourite (i.e., residential property). For this reason, it’s not a good idea to take huge bets on any single asset class. If you tie all your wealth to your property, to gold, or a particular fund, etc., then a single market disruption could wipe out all of your assets.

Balance is key here: you should consider a mix of assets. While the bulk of these assets are likely to be lower risk or based on fixed income (see point 1), you still want to ensure they’re coming from multiple different sources.

3. Tap on the flexibility of life insurance
Life insurance payouts are usually to benefit our children, spouse, and so forth, if we pass on. However, if you begin to approach the age of 100, this may not be necessary anymore - by then, your children may be well established working adults, or even nearing retirement themselves; they don’t need a big pay out from you.

This is where certain policies, such as life insurance with a savings component, can become helpful. Some (but not all) life insurance policies accumulate cash value; this can come as a guaranteed as well non-guaranteed portion.

That being said, please don’t rush out and surrender your life insurance right away. Speak to a financial representative first, as you don’t want to cash out too early (thus leaving your family unprotected). There may also be certain timing milestones to ensure you get the most out of it (e.g., it’s possible that if you wait a few more years, you can get a lot more from the surrender value).

If you’re still young, consider the benefits of this kind of life insurance, should you end up living a long time.

4. Ensure your funds are in safe hands, in case you’re no longer able to make decisions
We have to acknowledge the possibility that - as you reach the age of 100 - your faculties may decline. The sad reality is that conditions such as dementia do exist, and these can impair your ability to make financial decisions in your twilight years.

So to safeguard your accumulated wealth, you may want to talk to a lawyer regarding your will and estate planning. You can also nominate someone to make decisions on your behalf, if ever you can’t. You can legally grant power of attorney to one of your children, your spouse, or someone else you trust, to make decisions for you. If you don’t want to approach the law firms yourself, you can also ask your financial representative, who can identify the most cost-effective way to set up such arrangements.

5. Invest in your own health
This is tangential to finance, but it does matter: do consider investing in things like healthier eating (hire that nutritionist if you have to), hobbies that keep your mind and body active, or better care facilities.

In addition, good health will lower your healthcare costs in the long run, and thus preserve your retirement funds for longer. Money is better spent on a hobby you love than on frequent visits to the hospital.

In an expensive country like Singapore, living to 100 or more can be daunting; but Singaporeans are well-positioned thanks to the right tools and products to reach the fabled number.