No one expects to get sick or be forced to retire early as a result but sometimes life throws us these unexpected curveballs that are impossible to dodge. Most people are optimistic about their future, including how their retirement will turn out when they finally leave employment.
Sure, you eat right, exercise enough and lead a healthy lifestyle but the reality is, no matter what steps we take to avoid chronic illness and disability, there are no guarantees. There is very little we can do to avoid these unexpected and unpleasant things from occurring in the future. The question is, will we be financially ready if the worse were to happen?
Can your retirement plan, in the form of our Employees Provident Fund (EPF) savings, and also a medical insurance plan that you bought 10 years ago take care of all your financial needs if you require long-term healthcare?
According to the World Health Organization (WHO), the top killer diseases in Malaysia are coronary heart disease and stroke. Though treatments for these diseases and other critical illnesses are not hard to come by, they can be quite costly if you opt for private healthcare. The chances of 100% recovery is slim with diseases like stroke, and in most cases, the patients may need long-term care that does not come for cheap.
Insurance plans do not usually cover non-medical care, such as hiring a long-term nurse or carer, or buying of medical equipment and medication. Even if you take up the critical illness rider, the lump sum payment may just be enough to cover these expenses for a few years, and your retirement fund (if you have one), may barely cover your daily expenses.
So, what is one to do if he/she is in such unenviable position? If you fail to put your financial ducks in a row, you may be forced to make some last minute decisions to fund your aged care.
According to Ismitz Matthew De Alwis, the executive director and CEO of Kenanga Investors Berhad in an article published by The Star, long-term care facilities can range from RM1,000 a month with basic care services in semi-private room to RM5,000 a month, in a private room with skilled nurses and in-house doctors providing professional and specialised healthcare for rehabilitation or palliative care.
How can you afford on average RM3,000 a month on long-term care? Here are the five common financial decisions you may be forced to make to fund your or your loved one’s long-term aged care cost:
1. Rent out your home, or room
If you are lucky enough to own a home by the time you retire, failing to plan for aged care cost or long-term care cost may force you to lease out your home or at least rent out a room from you home to strangers to get some form of regular income.
A two-storey landed property located in Bandar Sunway can be rented out for RM2,000 to RM3,500 a month, while a room can be rented out from anywhere between RM480 to RM850.
The rental you can demand largely depends on the location and also the condition of your property. However, being landlord is not as simple as just getting the rental every month. If something were to break in your house, your tenant would require you to repair it – which means additional time and money that you do not have spent on the property.
Property also comes with other hidden cost such as assessment fees and taxes, and if the property you own is a high-rise condominium, you will also have to take costs like maintenance fees and sinking fund into consideration. Any income derived from property rental is also taxable.
2. Withdrawing your investments
Like most adults, you place your hard-earned cash in some investment products to achieve your financial goals – be it retirement, or your child’s college fund.
However, in times of urgent need, you can consider cashing out your investment to fund for a lump sum medical payment. These investment products can be:
- fixed deposit accounts
- investment accounts
- unit trust funds
- Amanah Saham Bumiputera
- listed shares and securities
In an ideal situation, your investments can be performing well enough to provide a regular income to fund your monthly care bills. However, if you are forced into a situation where you need a huge lump sum of money, you may have to withdraw your investments even if the price is not in your favour. This can often results in capital loss or high opportunity cost – money you could have profited were you to sell it at a favourable price.
3. Cash out your life insurance before maturity
A whole life insurance policy could be a source of cash while you’re still alive. Each policy has a cash surrender value that grows as you continue to pay premiums.
For those who may not need life insurance protection anymore, or perhaps in urgent need of a lump sum of cash, can opt for early cash out for their life insurance plan.
If you cancel your policy, you will not receive the total amount of premiums that you have paid to-date, as the surrender value (value of your policy when you terminate it) is usually less than what you have paid.
This will also mean your dependents (if any) will not be protected in the event of your death or Total Permanent Disability (TPD).
4. Withdraw your EPF before retirement
EPF allows you to make withdrawal in a few scenarios, and the two most relevant withdrawals you can make for long-term care are:
- Incapacitation withdrawal, which allows you to withdraw all of your EPF savings should you become physically or mentally incapacitated to work. Your doctor and/or a medical doctor in a Medical Board/Panel Clinic appointed by EPF, will have to certify that you have achieved the level of Maximum Medical Rehabilitation (MMI), which renders you unable to work.
- Health withdrawal allows you to withdraw your savings from Account 2 to pay for medical expenses incurred for the treatment of critical illnesses and/or to buy medical aid equipment as approved by the EPF Board for yourself or your allowed family members.
The above two types of withdrawal are only for EPF members that have not reached the age of 50. For those who have reached the age of 50, they are eligible to withdraw all of their savings in Account 2, and at age 55, all of their savings in both Account 1 and 2.
Though you may be able to solve your current financial situation, withdrawing your EPF for other matters other than retirement can have dire consequences on your finances. If things do get better, health wise, you will be penniless to enjoy the rest of your retirement without your EPF savings.
5. Sell your home
The decision on whether or not to sell your home to fund your aged care or long-term care will depend on your personal circumstances.
Some of the questions you need to consider are: Do you still have any financial dependent family members living in the house (i.e. children or spouse)?; Have you paid off your mortgage?; Do you have a place to live if you are not living in a care centre?
You can consider selling your current property and downsizing to a cheaper house to better manage your aged care cost.
Depending on your purchase price, your mortgage and the current market price, you will have to do the math to ensure selling your family home is a worthwhile endeavour. Other costs to consider are real estate agent commission and legal fees, which will eat into your profit from selling the home.
If you are using the money to pay for your regular long-term care costs, it pays to deposit the lump sum into a conservative investment product to ensure the money does not depreciate due to the rising inflation.
In an ideal world, our retirement plan should include the possibility of aged care cost, and our medical insurance coverage should be sufficient to cover the cost of medical treatment. However, most Malaysians are barely saving enough for their retirement fund to cover their daily expenses in their golden years.
With the stark reality of eye-wateringly high cost of medical treatment and long-term care (regardless of age), we have no choice but to put serious thoughts on preparing for all eventualities to ensure our retirement dream is not completely derailed.
Aged Care Group (ACG) is an organisation engaged in the business of elevating the aged care industry in Malaysia. Our vision is to innovate and transform the perception of ageing in Malaysia. For more information visit us at www.agedcare.com.my or contact us at 03 – 2142 1666.
Disclaimer: The following is the opinion of the writer and the recipient acknowledges that Aged Care Group Sdn Bhd and its associated companies are unable to exercise control to ensure or guarantee the integrity of/over the contents of the information contained.