Are You Prepared for Three Risks in Life?
President and CEO, MetLife in Korea
Each of us dreams of making a success of our lives. Some people dream of making a fortune, reaching a high position, or achieving fame in academia or society, while others dream of making a difference in the cultural, arts, or athletic community.
No matter what your dream is, your life cannot be considered successful if you fail to prepare against, and effectively manage, the three risks that every one faces in life without exception: unforeseen death, illness and outliving your assets.
First, you need to prepare for the possibility of illness and disability. According to research conducted by MetLife Mature Market Institute, you may need to pay an average charge of $206 per day for a fully cared nursing room in the United States, totaling over $75,000 per year. The Institute's research also finds that if you leave your job to care for a family member, you may lose up to $650,000 in lifetime income opportunities.
The situation in the United States is not so different in Korea. As Korean society ages, the social costs of long-term care grow. One good rule: You must start to protect your health when you are still healthy. The earlier you start doing so, the less damaging your illnesses, if any, may become.
You also need to prepare to mitigate the risks of death and longevity. According to a 2007 study on Aging Korea by the Center for Strategic and International Studies, Korea is expected by 2050 to become the oldest nation in the world, as over half of its adults will be 60 years of age or older and the number of people celebrating 90th birthdays each year will exceed the number of new births.
A long life without adequate financial backing may prevent one from enjoying a happy life in retirement. Currently, Koreans are generally expected to live to over 78 years, which means that they could live at least 20 years or more after retirement. Furthermore, only 44 percent of senior citizens in Korea are living with their children these days, compared with 81 percent in 1980. Currently, the poverty ratio among senior citizens is three times that of younger generations.
These findings could indicate that the family system that used to protect older generations after retirement in Korea is now collapsing. Clearly, older people's lives after retirement have become more vulnerable than ever.
If you do not prepare to mitigate these risks in advance, your retirement life may be far less than you hoped for in your younger years. How can you plan to ensure that your retirement dreams come true?
Generally, financial planning for post-retirement life involves a three-tier system that combines a public pension program, e.g., the National Pension, a corporate pension program, and a private pension program. This three-tier system, however, has yet to become commonplace in Korea.
In fact, looking at the public pension tier, the revised National Pension Act that passed the National Assembly of Korea recently has been widely evaluated to be a means to postpone the exhaustion of one's financial resources, but it is not a fundamental solution to the problems.
Considering the corporate pension tier, most employers in Korea are still watching and waiting to see what other companies will do with the corporate pension program that is scheduled to be implemented in full scale beginning in 2010.
Against this backdrop, people tend to develop higher expectations for the third tier ? the private pension program and, recently, a wide variety of variable annuity products have been launched and have been well accepted in the market. This positive welcome to the products could indicate that people expect that the products will help them significantly in preparing adequately for the quality of life they can enjoy in retirement.
When stock market gets volatile, products such as the innovative GMWB(Guaranteed Minimum Withdrawal Benefit) and GMAB(Guaranteed Minimum Accumulated Benefit) products are being welcomed in the market as a way of not only protecting financial assets but also seeking financial certainties for the long-run. For instance, currently available in the market, there is a very innovative variable annuity product which guarantees a policyholder up to 130 percent minimum accumulation benefit of original premium deposit. It also provides a very innovative option to reset your minimum guaranteed amount at every 5th year.
Retirement can be like playing golf
People who enjoy playing golf say that life is like a game of golf. Sometimes you can make a fantastic shot that flies right on to the fairway, but there are other times that you may make a wrong shot that is headed for a rough or bunker. As such, if you expect fantastic shots throughout your entire 18-hole game of golf, the chances are that you may end up ruining your game, because you simply cannot fulfill these hopes. Likewise, if you do not prepare to mitigate the many risks in life, you may end up not being adequately prepared throughout your life, particularly throughout your retirement.
The steps to a sound retirement
How do you prepare for those risks in your life?
First, consult a professional advisor to work with you to develop a financial plan for your future. Be as forthright as possible with your advisor. By sharing your financial standing to your professional advisor, as well as the goals you have for your future, you will be able to work together to receive the best financial plan possible.
Second, plan your future financial certainties for the longer run. In other words, plan for longevity. There is a lot of value in receiving regular monthly income benefits from your annuity products, which could exceed your expectations.
Third, act now. It is never too soon to start planning. No matter how good your plan is, it remains just a daydream if it is not put into action.
Fourth, check your plan on an annual basis until you achieve your goals. It is recommended to do so with your family, especially with your spouse, to help ensure that your family's needs are met.
If you adequately prepare to mitigate the risks associated with mortality, morbidity and longevity, you may be able to enjoy your life to the fullest.