Learning to cope financially with the longevity ‘curse’
Live beyond 100? Inflation can be ruinous, timing when to run down capital gets tricky, and taxes could rise
MANY cultures celebrate long life. Celebrations are held to mark milestones such as turning 80, 90 or 100. These can be joyous occasions that bring family and friends together.
More Singaporeans are living longer. Between mid-2015 and mid-2025, the number of Singapore citizens aged 80 years and over jumped by about 60 per cent to 144,910, while the number of those aged 90 years and over rose by around 95 per cent to 26,732. During this period, the citizen population as a whole grew by 8.5 per cent.
Looking ahead, with healthcare advancements and adoption of healthier lifestyles, even more people could be living longer.
Living a long life, provided one is generally healthy, allows one to spend more time with loved ones, travel extensively, pursue hobbies and acquire new skills.
However, living long can be a burden – one risks running out of money. Could living beyond 100 be a curse?
Longevity poses several big risks to financial planning.
Key risks
One, inflation can be ruinous. Assume one receives passive income of S$7,000 per month for retirement needs. This is 62 per cent of median monthly household employment income including employer CPF contributions among resident employed households in 2024 of S$11,297.
Applying a discount rate of 4 per cent, the sum of money would be worth 32 per cent and 54 per cent less after 10 years and 20 years, respectively, in net present value terms.
In short, receiving a stable stream of passive income may over time be insufficient to cover expenses because of inflation.
Certainly, tame inflation benefits retirees. However, the long-term inflation outlook may not be benign given fragmentation of supply chains, costs of caring for ageing populations, rising defence spending and costs of transitioning to a greener economy.
Moreover, as one ages, one may increase usage of labour-intensive services. And the costs of such services could rise faster than the overall inflation rate in an ageing society with tight labour supply.
Two, not knowing how long one may live and, in particular, being wildly off in one’s estimation can wreck financial plans.
Setting an accurate annual budget is often challenging; assumptions on projected expenditure may be wrong. And mistakes in projecting expenditure can compound over a long timeframe. Also, needs could change substantially during different stages of ageing.
Then there is the critical question of when to start using up capital and how quickly to run down capital.
One might sell a home to free up capital to help fund 15 to 20 years of retirement. But should one live past those years, one may have to see if there are other assets to be monetised.
On the flip side, one may over-zealously squirrel away funds. In this case, one might cut back unnecessarily on travel and wellness expenses, and inadvertently leave an excessively large estate when one dies.
Three, managing money can be hard work. An effort has to be made to ensure payments are collected in a timely manner from a rental property, or to move funds between banks to enjoy the best fixed deposit rate available.
Can one effectively manage money as one ages? Indeed, as one’s faculties decline, one may be more susceptible to falling prey to increasingly sophisticated scammers.
Moreover, in an age of disruption, a stable investment could prove otherwise because of technological or geopolitical ruptures. Think of once-solid businesses that crumble as entire industries disappear, or conflicts that ravage economies.
Perhaps one must constantly monitor threats and trends, and be nimble in capital allocation.
Four, watch out for higher taxes.
Certainly, many retirees worry over their healthcare needs. Retirees here can draw comfort that concerted efforts are being made to ensure that locals can access affordable, high-quality healthcare.
However, taxes could rise to meet higher healthcare spending. And some of the burden of higher taxation may fall on retirees, especially the more affluent. Think of higher property taxes or hikes in the goods and services tax.
Higher taxes can eat into income streams and add to expenses of retirees, who are unable to mitigate tax rises through rising wages.
The prospect of living a long life can be scary. Still, there are joys to behold should I become a centenarian. Maybe, I will live in a world that is greener, less unequal, more prosperous and embracing all forms of diversity. Also, I may hopefully have close family members and friends to cherish.
Preparation
To face the longevity risks to one’s financial well-being, prepare well, and balance paranoia with optimism.
Keeping mentally and physically fit is a prerequisite to doing a good job in being financially healthy.
Even at the height of one’s mental prowess, one can make wrong investment calls, as investments come with risks. Nonetheless, being mentally sharp will help one make better investment decisions and be more effective in managing cash.
Then, there is key-man risk in managing one’s personal wealth. This can possibly be addressed by involving a trusted family member more deeply in one’s financial affairs, especially as one gets older. In this way, if one loses one’s mental faculties, there is no need to scramble around to understand one’s financial affairs.
Moreover, a trusted family member, who is younger, could be a good sounding board to help one keep abreast of evolving megatrends that may greatly impact investment returns.
Even if one uses third-party advisers to manage one’s funds, having a trusted family member who can assume the role of owner’s representative helps in filtering through advice and monitoring management expenses.
Finally, receiving recurrent annuity income that grows over time, and owning high-quality dividend-paying stocks help. For example, collect steady and possibly growing dividend income from stocks on a quarterly or half-yearly basis.
Sure, living a long life comes with many risks and doing comprehensive scenario planning is tough. Importantly, no matter how well one prepares for longevity, remain optimistic when confronting the challenges and curveballs of living long.
I have occasional nightmares of living well beyond 100. Nonetheless, armed with a mix of paranoia and optimism, living a very long life need not be a curse.
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