By Ismitz Matthew De Alwis
*KC Lee, who is in his 60s, lives about as healthily as a person his age can. He doesn’t drink or smoke or indulge in bad habits like gambling. Although he retired 10 years ago, he continues to work part-time to keep his mind agile. He also hopes that the income received will help stretch his retirement nest egg a little longer and supplement his twice-a-year travel plans.
To keep healthy, Lee plays a game of badminton once a week with friends, something he’s done for the last 30 years. His wife, a housewife, takes care of his diet and checks his blood pressure at least once weekly.
Without medical insurance coverage, by exercising, eating well, staying busy and active, Lee hopes he doesn’t need to dip into his retirement fund for healthcare.
Then, Murphy’s Law. Lee had a heart attack.
He survives but required angioplasty at three different locations where the arteries are blocked. Besides surgery, he will now be on long-term medication. Not to mention, he is recommended not to work anymore to avoid any stress. This whole experience of unexpected ailment and unemployment have derailed Lee’s retirement plan and thrown his bank balance off-board.
Lee’s story is a typical case of any retiree. According to doctors, even though a person can be healthy, ailments can happen unexpectedly due to old age. Yet, none of us are likely to include major hospitalization bills or expensive medical treatments in our blissful retirement vision. But an unexpected turn of events such as terminal illness or accidents can easily wipe away all your life savings.
There is no question that healthcare expense is a big concern for retirees. In fact, many studies suggest it is the biggest concern that retirees have. Instead of planning ahead, many find ways to limit their spending during retirement years as a way to mitigate the worst of health circumstances.
Don’t wait till you’re sick
Health problems do not discriminate between age and gender. Those who have been known to lead the healthiest of lifestyle could also fall prey to unexpected, life-threatening diseases.
For those who are planning for retirement, healthcare is a huge expenditure to plan for on top of normal living expenses. Unlike travel, hobbies or entertainment expenses in retirement, medical expenses are non-discretionary. If you are sick or injured you need treatment. Having adequate reserves and a good medical coverage can be the difference between a comfortable retirement and one filled with financial challenges.
It is critical that you take a hard look at what your medical expenses might be and factor these costs into your retirement spending estimation as well.
The key product solution for healthcare protection is medical insurance. While people are generally encouraged to start protecting their health at an early age, it is never too late to start tending to your well-being.
But don’t wait till you are sick as medical insurance is only available to those who are in good health because insurance company is required to underwrite one’s risk. Also, the older you get, the more insurance is likely to cost.
The biggest chucks of healthcare costs
As retirement planning needs to be personalised, so is planning for your healthcare cost in retirement as different people will have different health risk factors. As such, it pays to look into your family health history to determine your health risks in order to prepare more adequately towards it.
According to the World Health Organization (WHO), the top killer diseases in Malaysia are coronary heart disease and stroke. There are treatments for these diseases and other critical illnesses but they don’t come cheap. To make matters worse, medical costs are getting higher by the year as our health deteriorates with age. In Malaysia, the medical inflation rate, which is the increase of medical costs, is between 10% and 15% every year.
Below is a list of diseases that commonly inflict senior citizens at retirement and provides a rough cost estimate for treatments today. When you are planning for your healthcare expenditure in 20 years to come, the amounts in the table serve as a guide.
|Medical Treatment||*Current Cost (RM)||**Cost in 20 years (RM)|
|Cataract||3,500 to 5,000||24,000 to 34,000|
|Heart Attack||10,000 to 30,000||67,000 to 202,000|
|Knee Replacement||15,000 – 40,000||101,000 to 270,000|
|Hip Replacement||18,000 – 50,000||121,000 to 336,000|
|Cancer||18,000 – 300,000||121,000 to 2,018,000|
|Stroke||35,000 – 75,000||235,000 to 505,000|
|Kidney Failure||150,000 and above||1,009,000 and above|
* This table serves only as a guide of healthcare costs from government as well as private hospitals.
** Conservative assumption: Healthcare inflation of 10% a year.
As medical advancements increase life expectancy, Malaysians will likely need a stretched out period of long-term assisted care in a nursing home at their last stage of life. This is so that their family members don’t get burdened with the hassles of taking care of them. While in Western countries insurance offers coverage of care facilities that take into account different stages of care up till palliative care, this has yet become a trend in Malaysia at time of writing. As such, additional provision needs to be set aside for care facilities that can include:
- Home care – for those who are more independent but need a bit of home care.
- Day care – for those who are lonely at home, day care provides interaction with other senior citizens.
- Integrated residential care centers or IRCCs – for those who had a bad fall or are bedridden and will need more care and rehabilitation care.
- Dementia care – for those Dementia patients who need a home where they can walk around, socialize and perform daily tasks in a safe and secure environment.
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. In the United States, four out of every ten people who reach the age of 65 will enter a nursing home at some point in their lives. About 10% of the people who enter a nursing home will stay there five years or more. In Malaysia, we need to account at least a year stay in a nursing home and it is wise to factor in a 10% a year medical inflation if you are planning ahead for the future (refer table below).
|Current Cost (RM)||*Cost in 20 years (RM)|
|Long term nursing care||1,000 to 5,000 a month||7,000 to 34,000 a month|
* Conservative assumption: Healthcare inflation of 10% a year
Planning a smooth sunset ride
It is important that we face our sunset years realistically. While critical illness like stroke or cancer can be fatal, one’s quality of life can certainly be enhanced with adequate medical attention. One of the surest way to address your concerns in the face of medical catastrophe is by getting an insurance policy that will see you through your medical needs.
Here are a few things to note when shopping for medical insurance policy.
- Get a medical insurance when you are in good health.
- Average lifespan of Malaysians is 75, so ensure plan provides protection way beyond that.
- Look for plans that do not impose a fixed lifetime limit to ensure continuous and uninterrupted access to medical care you may require in your old age. Consider an unlimited medical cover that starts over every year, regardless of the amount of claims you have made previously.
- Look for a higher annual limit to help cope better with escalating medical costs.
- Lastly, never ignore the fine print that is almost always at the edge of your documents. Make sure your insurance provider does not impose a co-insurance policy on you, meaning you will have to pay a certain percentage of the hospital bill on your own.
For long-term nursing care, because it is highly unlikely covered by your medical insurance, you would have to actively set aside an amount to be invested to grow this fund. To hedge against medical inflation, try aiming for an investment that can provide a return of at least 10% a year but without compromising on ‘safety’ of your investment. A vehicle that you can consider is unit trust funds that are invested in a portfolio of equity counters. Because unit trust funds are managed by professional fund managers, you will be subjected to lower risks than that of direct investment in stock markets.
The Bottom Line
There is no denying that healthcare costs are a major concern and even bigger expense for most retirees. But a financially successful retirement plan that includes a combination of proper health insurance coverage to provide the necessary medical attention when one gets sick and additional provision for long-term care will definitely set you on a correct path to a solid retirement plan.
While KC Lee’s conundrum is a typical concern faced by many Malaysians, not everyone has to face the rude awakening of high healthcare bill with proper healthcare planning for retirement.
Ismitz Matthew De Alwis is the Executive Director and CEO of Kenanga Investors Berhad, one of Malaysia’s top investment management firms. Matthew is a Certified Financial Planner (CFP) and holds a Capital Market Services Representative’s Licence (CMSRL) from the Securities Commission for fund management and investment advice. He is a staunch believer that financial literacy will empower Malaysians to prepare adequately for their retirement.