This article first appeared in Personal Wealth, The Edge Malaysia Weekly on November 13, 2017 - November 19, 2017

The rosy picture of a comfortable retirement is becoming a distant dream for many Malaysians due to factors such as longevity risk and a growing ageing population. Still, many do not realise the importance of planning for the various phases of their golden years and their long-term care needs, as well as how to effectively protect their estate when doing so.

This happens because many view retirement as a destination rather than a journey, says Kenanga Investors Bhd CEO Ismitz

Matthew De Alwis. According to him, Malaysians sorely need a wake-up call to understand that retirement is a whole life chapter that needs careful planning and consideration.

“Retirement is the next great journey in life, and can even be broken into three main phases,” says De Alwis. “The first is when you are newly retired and are excited to go on holidays and try out new hobbies.

“The second phase is when your body starts to slow down and requires more attention. The third phase kicks in when you are in need of constant supervision or long-term care. Each phase demands a certain amount of financial commitment and will eventually take a toll on your retirement funds.”

The biggest challenge in planning for your golden years is the risk of not having enough savings to ensure a sustainable retirement. According to De Alwis, three out of four Malaysians will not have enough funds when they retire as most of them are depending on their Employees Provident Fund (EPF) savings and are not aware of the multitude of issues that can arise during their retirement.

Citing a survey by University of Malaya’s Social Security Research Centre, De Alwis says at least two-thirds of EPF members aged 54 this year have less than RM50,000 in their accounts. “With the household poverty line at a monthly income of RM930 (according to the 11th Malaysia Plan, 2016 to 2020), that RM50,000 will only last 4½ years. This amount is not sufficient to support most people’s lifestyles well into their old age without any form of passive income after retirement,” he points out.

“Already, we have challenges such as longer average life spans. The life expectancy of Malaysians has increased by at least 25 years for both men and women between 1950 and 2015. By 2030, 14% of the population will be aged 60 and above, according to the EPF’s Annual Report 2016.”

The country is becoming an ageing society. An impending challenge that is slowly creeping up on Malaysians is the issue of a declining birth rate in recent years, says De Alwis. According to Vital Statistics, Malaysia, 2017 (released by the Department of Statistics Malaysia on Oct 31), the fertility rate per female aged 15 to 49 was 1.9 babies last year — the lowest ever recorded in the country. In 2015, the fertility rate was 2.0.

“The fertility rate in Malaysia has been below the replacement level of 2.1 — the average number of babies born per female. This has actually been an issue for countries such as Japan and Singapore for many years now, but we have yet to fully experience the negative impact of this. Ultimately, this causes a ‘top-heavy’ effect on the population pyramid — a narrowing base of young people to provide and care for a bulging older segment even as they try to form families of their own,” says De Alwis.

Another looming challenge in retirement planning is a lack of understanding and education on the concept of long-term care and what it actually entails, says Dr Carol Yip, CEO of Aged Care Group Sdn Bhd. In Malaysia, most people refer to long-term care as medical care and equip themselves with medical insurance to cover any large, unexpected medical treatments and hospitalisation costs.

However, long-term care includes services that assist individuals with their medical and non-medical needs during chronic illnesses or disabilities, who may not be able to care for themselves over an extended period.

According to Yip, long-term care in the country is offered by government welfare homes, private nursing homes, private care centres, voluntary aged care organisations and charitable centres. Despite the commendable industry growth, little is known about the type or standard of care provided by these public, private and voluntary facilities.

“We have many care centres operating across Malaysia. However, there is a huge chasm between the licensed and unlicensed providers as the latter far outnumber the former,” says Yip.

“This gap has resulted in the centres applying varying degrees of care. If care standards are not streamlined and standardised, it will pose many social and economic problems for Malaysia.”

These centres are currently regulated under the Care Centre Act and the Private Facilities & Services Act, she adds. However, their scope in terms of ageing and long-term care needs is too general and vague.

“Hence, we need structural reforms in the policies set in place, education [of long-term care services] and how we address specific long-term care needs. That is why we are looking forward to the Private Aged Healthcare Facilities and Services Bill, which is currently being tabled in Parliament, and how it will impact our healthcare policies and long-term care options,” says Yip.

In retirement planning, it is not enough for Malaysians to ensure that they are able to generate wealth. They also need to preserve it so it can be passed on to the next generation. To do this, they will need to have well-crafted, regularly updated estate planning documents, regardless of the size of their assets.

According to Farah Deba Mohamed Sofian, partner at Wong Lu Peen & Tunku Alina Advocates & Solicitors, proper estate planning prevents arguments between heirs, reduces the complexity of the claim process, lowers the likelihood of having to deal with the heavy debts of the deceased and ensures that the assets are inherited by the right heirs.

However, it can be challenging to draw up a proper estate plan as there are many things Malaysians should bear in mind before and while doing it. According to Farah Deba, some of the things they should consider before drawing up estate-planning documents include preparing a list of assets and liabilities (complete with points of reference and contact details), setting aside allowances for the executors and properly informing the executors that they have been appointed.

“If your intention is to appoint an individual as your executor, do approach the person to seek his agreement to be appointed as your executor. This means you must be willing to tell him your plans and secrets. If you do not do this, it can get messy,” she says.

“For example, if there is a third-party claimant who suddenly appears and says that he is entitled to part of the wealth, the executor may not know how to handle it. These kinds of disputes mean you will not be able to preserve your wealth because it cannot even be passed on. Thus, the best practice is to be frank with the executor about sensitive family issues that he should take note of.”

These challenges and other topics such as the market outlook for 2018 and what they mean for your investment strategy will be discussed at The Edge-Kenanga Retirement Forum titled “The Coming Third Age Crisis”. It will take place at Setia International Centre in KL Eco City on Nov 18.

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