This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on June 14 - June 20, 2016.
Thomas was in his late 20s when he was promoted to division head at a public-listed company. With the increase in income, he was able to buy a new house for RM1 million three years later. He and his wife Mandy also used their savings of RM200,000 to buy two apartments for investment purposes, using the rental income to service the monthly loan payments.
With their total annual income of RM260,000, Thomas, who is now 38, considered himself financially secure — until his mother was diagnosed with cancer. Also, his father recently underwent bone surgery and required some medical attention and home care. Having to take care of their children as well as his parents has been emotionally and financially taxing on him and his wife.
Thomas and Mandy have been busy working and focused on building their wealth. But despite having three properties, they only have about RM70,000 in savings. They do not have any insurance plans or medical cards for their parents, who are at the age where health issues are starting to kick in.
At first, they took his mother to a government hospital to seek treatment for cancer. But due to the long waiting time, they decided to go to a private hospital instead.
The estimated cost of the cancer treatment is about RM150,000, excluding the costs for the recovery period. These medical expenses have eaten into their savings for their children’s education and their own retirement.
The rising cost of living has also added to their financial burden. And Thomas’ parents do not have much savings except for their house as they believed their children would take care of them in their old age.
Thus, the responsibility for their medical and other expenses falls on Thomas and his brother, who lives in Australia and only comes back occasionally for a visit. Hence, his brother is unable to look after their parents.
Thomas and Mandy’s assets are their properties, some gold and the savings in their mandatory retirement fund. They do not have enough money for his parents’ medical expenses. In addition to the cost of cancer treatment, they need to spend on elderly care as well.
They have employed a maid and a nanny at a cost of RM3,400 a month to take care of their children and his parents. Thomas’ father needs about RM2,000 a month for his medication, health supplements, medical disposables and in-home care.
Thomas also needs to make some renovations to his house to make it more user-friendly to accommodate his parents. Mandy initially wanted to quit her job to take care of them, but luckily her employer was open to flexible working hours and allowed her to work from home once a week.
Life goals analysis
Assuming that Thomas and Mandy make no changes to their current financial behaviour, they will be RM3,872,400 short of meeting all their goals. The graph illustrates how their savings, withdrawals and expected long-term rate of return will impact their investment capital over their lifetime.
Here are some things Thomas and Mandy can do to improve their situation.
- Thomas could discuss with his parents and brother the available options for caregiving, home care, medical care and health aids. Also, who else they can turn to if they cannot attend to their parents or in the event of an emergency. Hospital and ambulance services, non-medical home care providers, as well as relatives, neighbours or friends can provide valuable support in a time of need.
- Thomas and Mandy’s role as caregivers may affect their earnings and thus, savings for their other goals. He and his brother should share the treatment cost for their parents, with each of them contributing RM1,000 a month to a common fund for their parents’ elderly care.
- They should control their spending. With the many uncertainties surrounding them, Thomas and Mandy should not buy anymore properties or cars. More detailed budgeting would ensure that their living expenses are within budget and encourage more savings, which are important for emergencies.
- Thomas and Mandy should make sure their retirement plan remains a high priority in the face of all their financial obligations. The extra savings can be invested in a diversified portfolio to avoid being hit by any global uncertainties. They should postpone their plan of migrating to Australia and use the savings of RM40,000 to invest and grow their wealth. They could also consider refinancing their investment properties up to the amount where the loan payments can still be covered by the rental income to obtain funds for some liquid investments. Of course, this would require some analysis and reassessment of risk and rewards.
- They should protect their assets with insurance. It is time to revisit their disability and medical coverage to ensure that their family can maintain their preferred lifestyle and still meet their obligations. Thomas must consider RM3 million in insurance coverage to match the shortfall in the event of his premature death.
- Thomas and Mandy should write their wills and/or have a valid, up-to-date power of attorney for their properties and personal care — designating someone to make decisions in these areas in the event of incapacity or premature death. They may also consider setting up a living trust to include Thomas’ parents so that they continue to have a roof over their head.
- They should update their financial goals regularly. As the family situation evolves, they may need to reassess the amount of savings needed for retirement and their children’s education.
Catherine Khoo is a licensed financial planner with CWA . She was recently recognised by the Financial Planning Association of Malaysian as one of the top 3 scorers at the Malaysian Financial Planner of the Year Award 2015. For queries, email us at [email protected].
All information contained herein is solely for educational and awareness purposes and should not be construed as an offer or a solicitation of an offer to purchase or subscribe to products offered by CWA. No representation or warranty is made by the said financial planner and/or CWA nor is there acceptance of any responsibility or liability as to its accuracy, completeness or correctness.
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