3 Financial Planning Blindspots For YoYo Parents
1. Not writing a Will
I may be over-generalising but YoYo parents tend not to have a will done. Perhaps, this is because legacy planning is not at the top of their priority and having a will done is perceived to be something that is related to gifting and legacy.
Yet, if you are a YoYo parent and you prefer not to leave anything to your children but to the surviving spouse instead, having a will is actually necessary. Consider what happens to someone who is married with 2 children but have not written a will.
Assets Distributions in accordance to the Intestate Succession Act (Non-Muslim)
50% Surviving Spouse
50% Divided equally among children
In this situation, the surviving spouse losses half of the retirement assets and they could be in the form of investment properties, personal investments, life insurance payouts, sole-name bank accounts and many other type of assets held at the point of death.
Getting a will done is more necessary than is commonly assumed. For this, the YoYo parents I’ve spoken to still takes a lukewarm attitude toward writing their wills partly because most of their assets are already held in joint name (e.g. HBD flats, joint bank accounts…etc) but more likely, they feel the right time to do it is later on when they are much older and this brings me to the next blind spot.
2. Underestimating Long Term Care needs
Growing old is a certainty and even if there are no major illnesses, the body will still wear out naturally. Physically deterioration even in the absence of any major illness can throw a big spanner into the “YoYo” plans. To begin with, both the husband and wife are already seniors so having each other as the sole long term care giver is unlikely to be a workable plan. In a worse case scenario, you can imagine one with partial disability looking after another with total disability. Eventually and quite likely, the children will have to be involved.
Having exclusively planned to be independent of their children, the YoYo parent comes a full circle and in some situations which are beyond their wishes or control, ends up relying on their adult children to take care of them. This is when the impact of the decision not to own a sufficient amount of whole-life and critical illness insurance will be felt the most as the intention to leave behind some form of financial legacy to the care giver/child may unexpectedly appear.
In my opinion, a good long term care plan has 2 parts – clarity and money. Having a lasting power of attorney done and specifying who is responsible for the personal well-being as well as financial management of your assets will provide clarity.
However, to have a better than average long term care plan, there must also be sufficient funding. Make sure that there are sufficient long term care funding through insurance such as ElderShield, ElderShield Supplements and Critical Illness insurance to make sure that the child or any caregiver you have appointed to take care of you will also have the means to do so.
This is especially so when you consider the next blind spot.
3. Reduction In Income When One Spouse Dies
If indeed the expectation is not to rely on children’s allowance for retirement, the planning for creating your own lifetime income must be carefully thought out and considered. The whole idea behind YoYo parenting is predicated on not burdening the children in the future and running out of money is a sure way to burden the children.
The importance of annuity planning in retirement should not be underestimated in retirement.
Consider the following projections from the Society of Actuaries in the US:
A 65 year old Male will have a 25% chance to live to age 93
A 65 year old Female will have a 25% chance to live to age 96
A 65 year old Married Couple will have a 25% chance that the surviving spouse lives to age 98
Considering that the average life expectancy in Singapore is longer than the United States by more than 3 years, you can probably add a few more months onto the projections above! Thus, the challenge for a married Singapore couple planning a joint retirement is to create an income stream that is sufficient to last until the age 98 at least.
A common problem that can occur is that both the husband and wife have income from annuity plans that are uncoordinated. This will result in a reduction in income when one spouse dies first. An extreme example of a situation like this will be a couple that is depending on the pension income from the husband. When the husband passes away, the wife will be left with no income at all as the pension income will stop.
In real life practical situations, I’ve seen couples who are planning for a “joint retirement” when only one of the spouse has the financial know-how, the expertise to manage money or in some cases, having retirement income tied to the survivorship of a particular spouse. This type of “joint retirement” planning may be true only as an idea but not in real life as the surviving spouse is still left to solve the retirement problem all by him or herself with half the resources available.