Wishes and Wishers

Big on giving, small on saving

In the latest global survey conducted by HSBC1, among 16,000 respondents over 25 years of age in 15 countries, Malaysia ranked third among those surveyed who wish to leave an inheritance to their children or next of kin. The global average was 69%.

However the Global Report also revealed that Malaysians' average inheritance value which is USD 38,814 or approximately RM 122,913 is the lowest in the survey, based on median value. It seems to suggest that Malaysians are comparatively not as good in saving or that our savings levels are not keeping up with unexpected living costs and expenses. Perhaps, we are not as clued in to financial management. According to a recent financial report, the prevailing household debt in Malaysia is increasing at an average rate of 12% annually over the past 5 years².

Alas, according to the global observations in HSBC's Global Report, while Malaysians seem to be among the most generous-minded, our legacy value was the least among those in the survey. The difference between what Malaysians wish to give and the actual value of their gifts is hugely significant.

Generosity versus reality

How do your aspirations measures up against what will eventually be your savings amount? Your retirement funds and assets are usually an indication of how you will distribute your legacy.

By 2020, approximately 3.4 million or 9.9% of Malaysians will be over 60 years of age. One in ten is estimated to retire at this age and the majority preparing their inheritance arrangements³.

How do your aspirations measures up against what will eventually be your savings amount? Your retirement funds and assets are usually an indication of how you will distribute your legacy.

Living longer, giving less

All over the world, improved healthcare standards, better nutrition and higher health consciousness have helped increase life expectancy. Likewise in Malaysia, the life expectancy ages of Malaysian men and women have risen to 72 years and 77 years respectively between 2010 to 20135.

Even with retirement age increasing from 55 years to 60 years of age, this means an extended average life term of 12 years (men) and 17 years (women) where retirement savings would have to be stretched for longer. It would seem that Malaysians would be using their retirement funds more and more to live on. This would mean less for giving away as inheritance when the time comes.

Based on the statistics of retirement patterns in Malaysia, retirees are indeed not satisfied with their retirement savings. A high majority of those interviewed, wished they would had planned a little more wisely⁶.

Wishing well

What you're planning to leave behind for your loved ones could be eroded by unexpected expenses, underestimated costs, or unwise decisions.

Rising costs of living, higher expectations in living standards, investment attitude, savings habits, inadequate or inappropriate fund management, or salary scale not moving in tandem with inflation - any one or combination of these could well eat away hard earned savings.

How will you then juggle the prospect of your own retirement expenses as well as prepare to leave a sufficient legacy? Will one have to be sacrificed for the other?

Furthermore, for Muslim retirees, there are important considerations in will-making as portions for male and female descendants are defined by Shariah laws.

Thrive not thwart

Like most caring parents you will want your children to achieve their ambitions and generally be able to afford a good life, free from financial encumbrances.

There are many aspects and options in creating a financial legacy. Thus, it may be best to work with a professional financial advisor early in the process.

Before you do, you can clarify your own goals with this useful checklist:⁷

1. Are you (and your family) clear on what wealth means for all of you?
2. What are your family's values on wealth? For example, a family may see wealth as a means to maintain a quality lifestyle, while another may see it as a means to give to important causes. Neither is right or wrong, just what is important to a particular family.
3. If you have a business, is it a must to pass it on the next generations? Or do you see it as a means to make a profit or provide jobs to others?
4. What would you like to see preserved? Is there a family heirloom? A property that you wish to keep for future generations?
5. Who would you like to include in your financial legacy? Spouse? Children? Grandchildren? Siblings? Nieces and nephews? Charitable causes close to your heart? Make a list of all who matter to you and decide whether to include them in your financial planning.
6. How is your personal financial status? Do you have enough in your retirement savings to live the lifestyle you want? Are you adequately insured for medical emergencies? Do you have outstanding debt? What about your investments? By assessing your financial standing, you may have a better understanding of how much you can leave to your loved ones.

And there's no better place to start this off than a chat with your personal banker to assess your individual needs and work with you to chart your future steps, with sure footedness.

It won't be wishful thinking, afterall.