Monthly Archives: March 2016

To Spend or To Save: Are My Money Habits Putting Me At Risk?

This is the first journal entry of Sean, your average neighbourhood Joe from a middle income family and the only child of ageing parents, living in suburban KL. Thus far, I am able to make enough income to support my parents and continue Maria’s employment to look after my parents and manage the house.

I used to think I had all my financial bases covered thanks to a steady job and smart decisions on investments that paid off. I thought I had a solid plan to achieve my vision of a blissful retirement the moment I could make my full pension withdrawal at 55. I knew exactly what I was going to do to grow my funds while enjoying retirement. I was quite confident in my financial security and strategy. That is until Mum and Dad’s health needed more attention.

In a nutshell, Dad was diagnosed with third stage liver cancer and Mum’s health took a nosedive while we cared for Dad, all the while expenses rapidly rising. Even with Dad’s insurance and monies from savings and investments, it was very troubling financially.

Even though Dad had done his financial planning, he did not expect to be diagnosed with cancer. The accumulated wealth from his savings and investments did not adequately account for his healthcare.

I was very much in danger of repeating that mistake. This experience made me re-look my behaviour towards money, lest my saving strategies fail to account for the unexpected.

It is common for most Malaysians to take their entire pension at retirement with big plans to invest in a business, pay off financial commitments, go on a series of holidays or any other variety of indulgence (experiential or otherwise). According to Dato’ Steve Ong, CEO of Private Pension Administrator Malaysia, 50% of EPF contributors spend their lump sum within five years of retirement (‘Retirees need financial education’ – December 9, 2014).

There’s nothing wrong with enjoying hard-earned retirement savings so long as you have a solid plan and know what to expect. I have to know whether my spending habits are risking my retirement plans.

Last year, The Star reported that 90% of Malaysians chose to keep the full pension withdrawal age at 55 instead of raising it to 60 (Most contributors not interested in other withdrawal option – April 22, 2015). If Dato Ong’s statement is any indication, how many Malaysians who chose to keep the status quo will eventually become flat broke retirees in five years?

Coupled with the option for employees to keep 3% of their EPF contribution (Recalibration: Malaysia Budget 2016 Highlights – January 28, 2016), the question again comes back to “Do I spend or Do I Save?”

Without a doubt, some would favour immediate usage over the loss of higher accumulated wealth in the future. In some cases, the choice to lower contributions is justified, but is withdrawing a smaller pool of wealth at 55 the only risk?

As it is, Malaysian families typically find themselves repeating a vicious cycle of financial burdens due to healthcare costs. The scene usually consists of adult children supporting their own family and their aged parents, who have exhausted their pension savings.

When they become ageing retirees, in need of healthcare themselves, they discover their savings are insufficient to cover the costs and their now adult children need to step in. Thus, the cycle begins anew. Should I then risk lowering my EPF contributions?

Assuming your current salary is RM4,000 and you have decided to lower your EPF contributions, the RM120 you are likely to spend on a Friday night outing could have been RM43,200 more in the EPF for your retirement (and healthcare if age doesn’t treat you kindly), factors of salary increments aside.

In his interview with The Star (67% of EPF members not ready for old age – November 21, 2015), Deputy Finance Minister Datuk Chua Tee Yong said only 20-25% of Malaysians are financially literate.

Yet even the financially literate are not immune to making mistakes in financial planning and investments as having access to more funds comes with a risk of overspending. This is especially true of those who might miscalculate each month’s spending in early retirement and leave too little for their later years, especially when medical and caregiving services are needed.

Not leaving aside enough for your healthcare needs later on in life coupled with the fact that people are living almost two decades longer (World Health Organization’s report, World Health Statistic, 2014) is a recipe for disaster. There is a major risk of poverty and even physical suffering as a result of outliving your accumulated wealth.

Russell Investments’ director emeritus Don Ezra stated that once retirees live past the age of 75, longevity risks (the risk of living longer than expected) exceeds equity risks, which is the risk involved in holding equity in a particular investment (Why I love deferred annuities – January 19, 2016).

With those risks in mind, perhaps it is time to look for an annuitising option – where I can rely on a set amount of income to arrive on a monthly basis, subject to the return of my investment – to help manage my spending during my retirement.

So, what are the options for the future of an ageing retiree?

Perhaps a service which channels annuitised payments into healthcare planning and services is needed. Given the nation’s impending ageing status, I imagine future circumstances will be very difficult for both businesses and the general public if these services are slow in development.

This development is certainly a step in the right direction if the nation intends to reach a developed nation status by 2020.


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.

First Published in Smart Investor, March 2016, Issue 311

Have You Planned For Aged Care Cost In Your Retirement Plan?

Can your retirement plan roll with the punches from healthcare costs or will it suffer a knock-out in the first round? Can it survive a stroke or a heart attack? Or will it be wrecked by unexpected conditions that require long-term care such as cancer or Alzheimer’s Disease?

Like many difficult situations in life, being struck by a life-threatening disease or unfortunate circumstance is often thought as something that happen to “other people”, until they happen to you.

Health ailments do not discriminate between age and gender, nor does it only happen to the affluent. They can happen at any given time to anyone and 100% recovery may not always be possible. The World Life Expectancy indicates that heart disease and stroke are the primary killers in Malaysia, with lung disease, road traffic accidents and cancer (the lung and colon varieties) following closely behind.

In short, you never know what life will throw at you. Yet when planning for our retirement, many have not adequately accounted for (if at all) the impact of expensive medical treatments and healthcare expenses which can easily burn through your accumulated savings. If insufficiently prepared, you could even face bankruptcy.

The Star’s article Borrowing vs Financial Stability, reported that 18.5% of bankruptcy cases were a result of high medical expenses, based on data from the Credit Counselling and Debt Management Agency (AKPK). In combination with the fact that Malaysians are living longer by almost two decades, according to WHO’s World Health Statistics 2014 update, there are increasing odds that you may find yourself far removed from a blissful retirement, and instead pitting your retirement funds against healthcare costs and ailments in your twilight years.

While contracting a disease or a sudden accident is beyond your control, you can properly arm your retirement plan to cushion some of the impact from healthcare costs that may arise. This requires careful consideration of all available facts and resources to ensure your plan covers most or all areas. Hence, it helps to know what your options are in terms of finances and the types of care services required.

For your retirement funds to adequately account for healthcare costs, you need to consider the various challenges and factors involved to determine the type and amount of care needed – which directly impacts expenses – and how you will go about paying for your care.

Medical costs

According to the Malaysia Health Insurance, the cost of healthcare increases at an average of about 15% annually – which means that medical treatment costs nearly double every five years.

Dr H. Krishna Kumar, president of the Malaysian Medical Association states in his article, What’s Driving the Increase in Healthcare Costs in Our Country?, that the cost of hospital care is not controlled and continues to rise due to a variety of factors such as the increase in minimum wage for employment of clinic staff, expenses in producing drugs and the usage of increasingly more advanced technology to determine and treat ailments.

While the Goods and Services Tax (GST) is not applied to professional fees, it is applied to the cost of running hospitals and clinics, which the patients end up bearing. If the doctor that is treating you is a consulting doctor at the hospital (which is typically the case), his fees will also come with GST. In addition to GST, the Trans-Pacific Partnership Agreement (TPPA) might potentially come into play, driving cost of drugs higher with the tighter rules for copyright to protect intellectual properties, and inadvertently block cheaper, generic versions from entering the market. As a result, Dr Krishna states that drugs will cost even more over time.

Assisted living costs

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To give a clear picture of what assistance in daily living (otherwise known as non-medical care) involves, imagine you have a physical or mental impairment. Your home – which once provided shelter, safety and familiarity – is now a labyrinth of booby traps. Everything, from going up and down the stairs, to operating the kitchen stove, is an accident waiting to happen.

By this point, the need for assistance to continue with your daily activities becomes crucial. The ability to complete tasks such as taking care of personal hygiene (i.e. bathing, using the restroom, dressing and oral care), eating and transferring from bed to chair and back becomes diminished. If you have Parkinson’s, the potential for injuries caused by falls is greatly increased due to the inability to control your balance, involuntary muscle movements and a slower reactive response.

Then you have the medication management, which is a task of precision and details as the number of medications (some of which are to offset the side effects of other types of medication), frequency of the dosage and consequences of missing a scheduled dose becomes more important than ever. Hence, a caregiver is required to assist you with these needs.

If you opt to hire a private and trained caregiver, the cost typically ranges from RM15 to RM25 an hour on a daily basis. Cumulatively, that adds up to caregiving expenses ranging from RM2,000 to RM2,800 per month. According to research conducted by Care Matters in 2014, the cost for staying in a nursing home is RM1,200 to RM2,600 a month for basic care services in a semi-private room, while a private room is about RM2,650 to RM3,500 a month.

Bear in mind, these pre-GST rates only provide room, laundry, grooming and meals while excluding the charges for skilled nurses and doctors providing specialised healthcare for rehabilitation or palliative care and items such as milk formula for tube feeding (Current Situation of Nursing Home and Care Centres in Malaysia survey by Care Matters).

Don’t let unexpected healthcare costs put your retirement plan six feet under. Life could throw you a curveball and you may end up living with consequences which you might have overlooked. CNBC’s article Overlooked Health-Care Costs Can Destroy Retirement Planning states that good planning for how much you may need for your healthcare could prevent future healthcare expenses from consuming your savings.

Are there options?

So, what are the financial options available to cope with the various needs of care? Malaysians with lower income categories would utilise services from government hospitals (which are either free or charged at a nominal fee). Those from the middle or higher income tier would typically rely on private insurance premiums (i.e. medical insurance) and out-of-pocket payments to obtain services from private healthcare facilities due to perceived higher quality and reduced waiting time.

However, in either case, it is only the medical aspects of healthcare that are addressed. While medical insurance covers surgeries, room and board, there are currently no available products that cover the non-medical care aspect. Malaysians can only pay for non-medical care with out-of-pocket payments or funds withdrawn from EPF, SOCSO or lump sum payments obtained from Critical Illness Rider (provided the patient has visited the doctor and has been diagnosed).

Hence, the funds dedicated for your out-of-pocket payments and the wealth accumulated in your retirement planning need to factor in the non-medical care aspects as well as healthcare inflation. In Planning for Healthcare Costs in Retirement, Kenanga Investors Berhad CEO, Ismitz Matthew De Alwis mentions that you should plan to actively set aside funds, specifically for your long-term care, to be invested for financial growth. His advice is to aim for investments that can provide a return of at least 10% a year without compromising on the “safety” of your investment such as unit trust funds to hedge against medical inflation.

The name of the game

Whatever you choose, the bottom line is that healthcare costs will be an increasingly major expense in the later stages of your retirement. Hence, a solid plan that combines proper health insurance coverage together with a pool of funds that factors in the various costs incurred by non-medical care will ensure you are sufficiently ready financially to face unexpected events.

Unlike its western counterparts, Malaysia has yet to develop a financial product that accommodates both medical and non-medical aspects of healthcare. Hence, it is of utmost importance that you develop your financial literacy to cultivate healthy behaviours towards money. This will further enhance your retirement planning strategies when exploring options to pick what works best for you.



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First Published in, March 15, 2016

CareTRUST™ offers living trust for long-term care


MOST people do not think of their long-term care in the retirement years or what will happen if they get a debilitating disease like Alzheimer’s or suffer a stroke and can’t take care of themselves. The assumption is that family members will care for them.

That is a heavy responsibility to place on anyone’s shoulders, especially family who may not have the resources or the clarity of mind to decide wisely at that point.

Imagine, if you could write your end-of-life wishes – who you want to stay with, or where and how you should be taken care of – and set aside the money for that sole purpose?

That’s exactly what you can do now through CareTRUST™, a living trust where your money is set aside to ensure the provison of continuum care for your long-term retirement years.

CareTRUST™ is the result of a collaboration between care services company Managedcare Sdn Bhd, finance solutions provider Kenanga Investment Bank Bhd, and wills and trust advisors Rockwills Trustee Bhd.

At the Collaboration Agreement signing between the three parties recently, Carol Yip, CEO of Managedcare, said that the innovative product addresses the ageing demographic and provides the public with an effective solution through the administration of care.

She explained that Malaysia’s ageing population is growing while the family unit is getting smaller and the pressure is great for families to deliver the necessary care to elderly parents.

“We really need purpose-built infrastructure to ensure that there is sufficient money to pay for all these services,” said Yip, explaining that it took 1½ years to bring CareTRUST™ to fruition.

“It is not a unit trust fund. It is actually a living trust. You document how you want to be cared for, you put the money into the trust and we will manage it for your care needs. The aim is actually to address the financial sustainability issue such as longevity risk, medical inflation, cost of care, and insufficient savings because of high cost of living,” she added.

Ismitz Matthew De Alwis, executive director and CEO of Kenanga Investors, said that post-retirement can be scary because most people live longer these days.

“There is at least a good 20 years after retirement. There are three stages: the first where you enjoy retirement; the second stage is where your ‘engine’ needs some check-ups or an ‘overhaul’; and the third stage where you may be bedridden. We must be able to ensure that our retirement funding is sustainable through these three phases,” said De Alwis.

According to him, one of the aims of CareTRUST™ is to give clients peace of mind knowing that when they do their retirement planning, a part of their money is being channelled towards their aged care needs. If anything happens to them, they will have some funds to take care of their healthcare needs.

“A will is something that comes into effect once you have gone six feet under. A living trust is something that is carried out while you are still alive. It could be when you suffer a stroke or get dementia,” said De Alwis.

This is how it works:

The client shares their wishes for care in their long-term post-retirement days. Alternatively, a parent may share their wishes for a special needs child or an adult child may share their wishes for their elderly parent’s care.

Managedcare then comes up with a care plan. If there is a need for a nursing home immediately, then the company would start looking at all the homes that suit the client’s criteria and come up with a list of options. Being in the aged care industry themselves, Managedcare would have all the information in its database and finding a suitable home would be easier than if the client were to try to find a suitable home by themselves.

The client then sets aside some money towards their long-term care. The money is put into CareTRUST™ and managed by the KenWealth platform, under Kenanga.

The money would go into one of Kenanga’s money market products on the KenWealth platform which is very low on risks.

However, if the client is younger and can take a higher risk, then they might speak to a KenWealth advisor on putting their money into one of its other products which offers higher returns. The returns would go towards their retirement care plan.

KenWealth represents multiple companies. At the moment there are 12 partners for unit trust, 7 PRS providers and 4 or 5 insurance companies on the platform.

Managedcare functions as the care administrator. This means that if the elderly person is already in a nursing home, Managedcare will ensure the healthcare and care provisions are met. When money is needed for the care, Managedcare will inform Rockwills, who will see to it that the bills are paid using the money in the client’s KenWealth account.

This would also assist the elderly who are not mobile and find it inconvenient to visit the bank to sort out payment for their care.

Rockwills would provide Managedcare with quarterly reports on how much money is still in the client’s account.

Rockwills and Managedcare will work very closely. If anything changes (for example, the client has a new medical condition) and the client needs more money, then Rockwills will communicate with the client, and Kenanga’s services will be sought to help find a financial solution for them.

At no point would Managedcare, KenWealth or Rockwills be making decisions on behalf of the client. Each client should have a “protector”, most often a family member, to decide for them should they no longer be fit or capable of making decisions. Each client would also have a beneficiary, to whom the remaining money in the trust would be disbursed to should the client pass on.

“As care administrator, Managedcare will be responsible to ensure that the quality of care received is in sync with the client’s health and long-term care, and that will also go from long-term care to end-of-life care. We will co-ordinate and administer a variety of healthcare and care provisions to meet the needs of the client,” said Yip.

Azhar Iskandar Hew, deputy CEO of Rockwills, said that as the independent trustee, Rockwills will hold the money and have the custodial rights to manage the funds.

“Part of being a trustee is to safeguard the client’s interests and at the same time, together with Managedcare, we will help the client to manage the money so that it will last for as long as possible,” he added.

CareTRUST™ is the first of its kind in the Malaysian market.

Kenanga’s Ismitz noted that as Malaysia is an ageing country, the time is right for CareTRUST™.

“This collaboration marks a new milestone for the retirement and aged care industry to fulfil the need for an integrated financial and healthcare framework, especially for the ageing population. CareTRUST™ will encourage Malaysians to sustain a decent post-retirement lifestyle and sufficient funding for their long-term care needs.

“As an ageing population, the imminent growth of the retirement and aged care industry makes it an attractive endeavour which offers tangible opportunities to both individuals and corporates.

“To build this sustainable aged care infrastructure will require the help of many hands – government policy makers, healthcare institutions, entrepreneurs, education institutions, and financial institutions. These stakeholders are all part of the entire funding value chain from the generation of the idea to putting the brick and mortar of all these ideas together,” he said.

Managedcare, Kenanga and Rockwills hope that their product will spur a catalytic change in Malaysia’s aged care and retirement industry, to elevate it to be on par with regional countries.

They believe that CareTRUST™ can be used to add value to other industries such as property development, nursing care, healthcare and finance.

De Alwis said that response to CareTRUST™ has been favourable so far and he expects it will take off in 3-5 years.

“As with anything new, it will take some time. Hopefully we will continue in our efforts. We want corporations to get involved in this retirement industry and to support this overall ecosystem,” he said.


Photo: At the CareTRUST™ Collaboration Agreement signing ceremony: (From left) Carol Yip, CEO of Managedcare; Datuk Frank Choo, Aged Care Group’s managing director; Ismitz Matthew De Alwis, executive director and CEO of Kenanga Investors; and Azhar Iskandar Hew, deputy CEO of Rockwills.

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