Have You Hedged Against Longevity Risk?

Premature death occurs if a person passes away when he or she is still in productive age or worst still, die at a young age. One of the common tools deployed to protect our families in the event of breadwinner's demise is via insurance products which is a risk management tool.

Buying insurance does not necessarily means it is the only way to hedge risk of premature death. I do know someone who doesn’t buy insurance product to protect his family, he basically self-insure because his assets are be able to provide enough buffer and support to his family if he is no longer around. 

On the other hand, what if a person lives much longer? Life expectancy is longer nowadays due to medical advancement and other factors. If a person lives much longer without sufficient support of financial resources, this could also result in a big problem (“money finish but still alive”). We call this longevity risk.

There are many ways to avoid the dire situation of “money finish but still alive” and to make things worse, the children might not be able to provide support due to whatever reasons.

We could explore annuities products from insurance companies, reverse mortgage (if any), business income and more. We need to find the method that we are comfortable to start with.

An example of workable idea could be:

Dividend Income + Rental Income + Other Passive Income > Living Expenses.

Think of how much dividend income, rental income and other passive income that we need to build over time in order to strengthen our financial buffer against longevity risk.

These are the income generated from our ASSETS that we could rely on, but beware of consuming the ASSETS unnecessarily as we aim to consume the income generated from the asset base while leaving the principal intact.

Read books!

Think of how to acquire the right knowledge to earn the above types of income. Start with reading books and apply the knowledge learnt if it makes sense to us. MPH, Kinokuniya, Popular, Times, Borders and online bookstore, I am sure we can find tonnes of good books to help us get started! (proactive & action).

Think of how to connect to people who have done it successfully (success leaves clue).

Once you have successfully generated income from the above, don’t stop learning (sharpen your saw).

Celebrate each milestone achieved in our investment journeys with loved ones (think win-win).

The above equation is also a constant reminder that while we work hard to achieve our financial goals, we must also enjoy life and take care of the ‘things’ that money cannot buy i.e. self-worth, good reputation, respect, health, love etc.

Happy Investing!