If you have the choice, would you want to live till the age of 120? I believe many people will cringe at the idea of that.
Much of whether you would like to take that up would depend very much on the quality of life you have then, and how you perceived it will be in the future that you have.
In most cases, if you are a rich fella, you might want this eternal pill. If you are born in the slums, that will be more suffering.
If you have some chronic disease such as myself, you might not want to live to such an old age, where you will need to continue to pay for very expensive medication. I might even be disabled in a certain way by the the age of 50-60 and my quality of life have deteriorated drastically.
We tend to be very pessimistic people, and think that our lifespan is shorter than what it actually is. This is usually because of the availability bias of having encountered experience of friends, colleagues who have loved ones succumbing to health complications that cut their life short.
At first glance this is a mind-blowing projection, until you consider the record holder for longest recorded age, France’s Jeanne Louise Calment, who lived to 122, and more adults are living well past 110. Astonishing or not, longer life will force people to rethink how (and how long) they work, and focus more on increasing the quality of these longer lives rather than rushing to retirement in their relatively spry 60s.
I do not know about you but I believe science progress is going to make what was hard to solved in the past solvable in the future. Human beings looks to live longer.
With regards to wealth planning this presents a whole different challenge.
Term life insurance
The proponents of the people who advocate buying a death, TPD and critical illness plan with no cash value is that you would only need to insured until 65 years old. After that age, the cash that you did not put into the plan but you have invested would grow to a sizable amount to take care of your retirement needs after age 65.
In the case when you live to 120 to 130 years old, that means that you have like 55 years to live. What if you passed away during this period? What if you suffer from a critical illness and need a sum of money.
Living to 55 years old means having a bigger catchment area where these events would happen to you.
In my opinion, living longer would not mean that you need to switch to a limited whole life plan, where the cash value will cover you for life (from what I understand, it seems that they are covered until 120 years old! Hope some insurance savvy folks can clarify this!)
The objective of these 3 forms of insurance is to assure your dependents that in the event that you are not around, they have this amount of money to live off.
Much of the impact would depend of how many dependents you have by then.
If you still have children, or grandchildren that you are supporting, then this might be a problem. Without the coverage at age 75 and passing away would mean these dependents would have an issue.
In most cases the only dependent is your spouse and the problem of living longer have to do with how adequate we have in our ability to build up our wealth. This will be discussed in other sections in this article.
Critical illness is to alleviate income replacement and lump sum cost of treatment that is not covered by your hospitalization and surgical plan (in Singapore’s case the Medishield Life)
When you are in retirement mode, there is not much income to replace, since you are already living off your retirement wealth, so mainly the bigger problem here is the lump sum cost of treatment not covered by the hospital plans.
Longer life expectancy would mean a possibility of recovery and new critical illness happening. By then the original plan would not be able to cover.
It will also rendered you uninsurable.
The determinant here would be:
- how insurance health plans are restructured
- how medical science better prevent the onset of critical illnesses
- how much a person’s medical savings have grown to alleviate the high medical bills
Cash Value Limited Whole Life Plan
The problems posed by no cash value term plans seem to be addressable by limited whole life plans. In my opinion, if we look at the maths behind, at age 120 years old, having a cash value whole life plan is no different then that of a term life insurance and prudent investing.
The problem here is that the average folks do not prudently invest the difference. Hence they might be better with a cash value plan.
The argument against limited whole life plan is that, whole life plans are not cheap to service. Because of that, coverage of the average assured is less than that of what someone buying term life insurance can achieve.
At 75 years old, while the whole life insurance is still in effect, compared to a no cash value term life, the assured sum with cash value are not adequate for the dependents or for the medical cost then.
Retirement and Financial Independence
The problem of longevity for retirement and financial independence is bigger. The average folks, who have a problem meeting the retirement sum at age 65 now, would be more hardpressed if they live until 120 years old.
The standard sum that financial advisers say we need for retirement is for perhaps a 30 year retirement till the age of 95. If we are able to live to 120 years old, that means our retirement is 55 years.
It would mean we need a larger amount of wealth built up.
This is a bigger problem for the folks who made a lot, are able to reach financial independence, and stop working at the age of 45 years old or even less. Their wealth, which is required to last for 50 years now have to last 75 years.
There are many bull and bear markets within the stock market cycles that can result in sequence of returns risk rearing its ugly head.
Their sum of money would have to be larger.
So what is the solution to this?
You might be rolling your eyes on this solution, but if you look up why there is a retirement age, it points more to how in the old days, folks used to work and work longer, that company do not have a means to remove folks in their company from working.
So they introduced the concept of retirement age, to mandatory remove these folks from the work force.
In other words, its not because by 65 years old you are unproductive.
If you recall, the old retirement ages seem to be 55 years old and it has shifted back.
With medical sciences, and better nutrition, humans at age 65 years old may have the vigor of people at 45 years old. In such a scenario, working at 75 years old may not be too far fetch.
With regards to the financial independent folks, chances are, if you have the brains to put yourself in such a position to be financially independent, it is unlikely that you will spend 75 years not doing anything.
You choose the level of work according to your preference, and that may provide adequate sustenance so that you delay large draw down of your wealth, which allows your wealth to grow.
One of the main problem for the government is to contend with the longevity of their population. Short of poisoning the people by putting GMO into food so that particular segments of the population is culled, they have to have a system that ensures that not a mass of population runs out of retirement money and becomes a problem for the system.
That is why most governments try to set up a mandatory or non-mandatory private annuity plan.
In Singapore that would be the CPF Life. The population is pooled together so that the distribution is higher due to the mortality premium, while those that passed away earlier contributes to those that lived longer.
Disability Income Insurance
If we live longer than we may expect that the disability income coverage to be more than 65 years old, which is the current cut off. This would require policy change.
Long Term Care Insurance
Just like disability income, the worst part is that you require help to take care of you when you cannot carry out some basic things.
What we hope for is for medical science to be advanced so that some of these issues can be restored.
Else, long term care insurance becomes much more important.
I am sure I have not considered everything fully. In all honesty, most people would have a problem addressing their medical and retirement issues if they lived to 95 years old, let alone 120 -130 years old.
The solution is better planning and when we lived longer, it requires more applied financial advise. You can see that financial advisers who add value would be required in such a scenario.