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I Am Broke
Have you ever been broke? And I mean really broke? Living from one paycheck to another. Regularly scrutinizing your savings account, worried that your savings will run dry before the next paycheck. I guess since we’re working, it’s ok as we can ask banks to increase our credit card limit or apply for a loan. But what happens when we cannot apply for loans or increase our credit limit anymore? What happens when we’re not working anymore, that is when we retire and we are broke.
Would we want to be dependent on our family and relatives? Do we apply for some form of social assistance from the government? Will we go back to work, if we can work? What will we do?
Ladies and gentlemen, the reality of the modern world that we live in are that retirement plans/pension schemes whether organized by governments or corporations are increasingly pushing the responsibility to the individuals, ourselves to ensure that we ourselves will retire comfortably. Let me share with you 3 things that I feel we need to consider for us to do just that, to retire comfortably.
1. Our Pension Scheme
Our Pensions Scheme: Let me begin with the simplest assumption that you have a TAP or Employee Provident Fund Account in Brunei. A research by the Centre for Strategic and Policy Studies highlights that the current TAP contribution rate of 5% by both Employee and Employer is too low to fund retirement, especially for the lower Income bracket. Based on anecdotes, they also point out that after retirement, most withdrawals do no last more than a few years as they are used to settle loans and renovate houses.
Let’s move to the other notion that we have other retirement funds, money that we save each month for retirement. We should be fine, right? Maybe. Maybe not.
The Centre for Retirement Research in Boston College, USA highlights for most people, they will need 65% to 85% of their pre-retirement income after they retire.
If we earn $2,000 just before retirement, we would ideally like between $1,300-1,700 every month when we retire. If $3,000 is our pre-retirement income, after retirement, it’s around $1,950 to 2,550, and so on.
Going back to the Centre for Retirement Research, their study showed that in the US, about 45% of working-age households are failing to meet that percentage. They will have to change their lifestyle dramatically.
How about us? If we accept that we will need 65%-85% of our pre-retirement income when we retire, have we planned enough?
2. Longevity
With breakthroughs in healthcare, our present generation is expected to live longer than in the past.
According to United Nation statistics on Brunei,
• Year 2000-2005: Life expectancy is 74 (man) & 79 (woman).
• Around 2040: Expected to be 78 (man) & 83 (woman).
The difference between the 2 periods is only 4 years. Is the difference significant? I believe it is. The financial amount you need to save by 55 increases, ranging from $62,400 to $163,200 (Table/Assumptions not shown, unable to upload).
Though these life expectancy figures are estimates, the general trend is that we will generally live longer than previous generations, and we might want to consider that in our retirement plans.
3. Health cost
This brings me to my last point: Health cost. An article in the New England Journal of Medicine, highlights that health cost will increase simply because people get more care, especially with new medical technologies. In other studies, better prescription drugs are mentioned as the main factors. Hence, we live longer. Hence, we need more health care and we pay out more.
An article on Brunei in the Asia Pacific Population Journal states that Brunei has an ageing population. While Bruneians may currently enjoy free medical care from the government, increasing numbers of elderly will put a strain in the financial liabilities for the government’s health care system. Speculatively speaking, it is not impossible that slowly but gradually we will need to bear these medical costs as individuals, whether it is through a medical insurance scheme or otherwise. So have we considered future health expenses or medical insurance schemes?
Fellow members & friends, at the end of the day, when we consider all these 3 points; pension schemes, longevity & health costs, the most important question we should now ask ourselves is, what can we do now?
My best suggestion is, don’t believe me 100%. Talk to a certified financial planner & maybe don’t believe them 100% either. Better yet, learn and pick up financial planning for retirement ourselves. If it’s something very important such as retirement, why leave it to someone else.
I leave you with a quote from Boxer George Foreman who said:
“The question isn't at what age I want to retire, it's at what income.”
Would we want to be dependent on our family and relatives? Do we apply for some form of social assistance from the government? Will we go back to work, if we can work? What will we do?
Ladies and gentlemen, the reality of the modern world that we live in are that retirement plans/pension schemes whether organized by governments or corporations are increasingly pushing the responsibility to the individuals, ourselves to ensure that we ourselves will retire comfortably. Let me share with you 3 things that I feel we need to consider for us to do just that, to retire comfortably.
1. Our Pension Scheme
Our Pensions Scheme: Let me begin with the simplest assumption that you have a TAP or Employee Provident Fund Account in Brunei. A research by the Centre for Strategic and Policy Studies highlights that the current TAP contribution rate of 5% by both Employee and Employer is too low to fund retirement, especially for the lower Income bracket. Based on anecdotes, they also point out that after retirement, most withdrawals do no last more than a few years as they are used to settle loans and renovate houses.
Let’s move to the other notion that we have other retirement funds, money that we save each month for retirement. We should be fine, right? Maybe. Maybe not.
The Centre for Retirement Research in Boston College, USA highlights for most people, they will need 65% to 85% of their pre-retirement income after they retire.
If we earn $2,000 just before retirement, we would ideally like between $1,300-1,700 every month when we retire. If $3,000 is our pre-retirement income, after retirement, it’s around $1,950 to 2,550, and so on.
Going back to the Centre for Retirement Research, their study showed that in the US, about 45% of working-age households are failing to meet that percentage. They will have to change their lifestyle dramatically.
How about us? If we accept that we will need 65%-85% of our pre-retirement income when we retire, have we planned enough?
2. Longevity
With breakthroughs in healthcare, our present generation is expected to live longer than in the past.
According to United Nation statistics on Brunei,
• Year 2000-2005: Life expectancy is 74 (man) & 79 (woman).
• Around 2040: Expected to be 78 (man) & 83 (woman).
The difference between the 2 periods is only 4 years. Is the difference significant? I believe it is. The financial amount you need to save by 55 increases, ranging from $62,400 to $163,200 (Table/Assumptions not shown, unable to upload).
Though these life expectancy figures are estimates, the general trend is that we will generally live longer than previous generations, and we might want to consider that in our retirement plans.
3. Health cost
This brings me to my last point: Health cost. An article in the New England Journal of Medicine, highlights that health cost will increase simply because people get more care, especially with new medical technologies. In other studies, better prescription drugs are mentioned as the main factors. Hence, we live longer. Hence, we need more health care and we pay out more.
An article on Brunei in the Asia Pacific Population Journal states that Brunei has an ageing population. While Bruneians may currently enjoy free medical care from the government, increasing numbers of elderly will put a strain in the financial liabilities for the government’s health care system. Speculatively speaking, it is not impossible that slowly but gradually we will need to bear these medical costs as individuals, whether it is through a medical insurance scheme or otherwise. So have we considered future health expenses or medical insurance schemes?
Fellow members & friends, at the end of the day, when we consider all these 3 points; pension schemes, longevity & health costs, the most important question we should now ask ourselves is, what can we do now?
My best suggestion is, don’t believe me 100%. Talk to a certified financial planner & maybe don’t believe them 100% either. Better yet, learn and pick up financial planning for retirement ourselves. If it’s something very important such as retirement, why leave it to someone else.
I leave you with a quote from Boxer George Foreman who said:
“The question isn't at what age I want to retire, it's at what income.”
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