Sweet Old Days👵👴

Your mind closes window to any distractions as he speaks, his raspy voice filling this very moment with silence, deafening silence i must say. In fact, every one at the dinner table is glued to the TV set as this man, 94 years of age, speaks to the audience at that fund raising event. It’s one of those moments when everyone is still; holding the plate of food in one hand as the spoon sits at an angle waiting to scoop yet another mouthful. Your mouth has paused the process of forming a bolus, mastication, because this man whose voice traveled your ear drums and chose to rest at the cochlea, is no ordinary man. Not to be dramatic, but at 94 years his bones and flesh seem to be resisting old age! So all you, including your baby sister, wonder in silence just how this man arrested the thief of ‘youthfulness’ and managed to convince him to make his body stronger than ever. One of your family members will shout as the old man’s news segment is over, “ni mali yenye aliiba ndio imefanya akae hivyo”. Your mum will give them a stun look as she says, “ni kukula vizuri wewe. Hizi juice za carrots na managu zenye huwa natengeneza kwa hii nyumba ndizo zinafanya mtu aishi milele”. Then she stands to bring that jug of concoction and you give her that look of “nop! there’s no way that’s getting to my bladder”. This man, dear reader, that has attracted this much attention is Daniel Toroitich arap Moi.

Such a dramatic start to our topic of discussion today😂, longevity risk.

There’s no doubt that living long is a blessing. Personally, there’s a certain element of joy and admiration that unconsciously strikes me when we visit my grandparents. Its usually a moment of peace just shaking their hand and watching them speak. In your heart, you pray that they live long enough to see your kids and the kids of your kids and you know, their entire generation. Bliss.

However, today, in line with finance matters, I would love to engage you in an interesting topic of longevity risk; living beyond your expected life expectancy. Taking a simple example; say you expect to live to the age of 80 years. As you work, you make consistent savings so that when you retire, you will have some income to support you post-retirement till your expected age of 80 years. However, as you approach 80, you notice that there’s a 90% chance you will continue living beyond 80. Maybe you did very good exercise in your youthful life, went for regular check ups, laughed a lot, drank your mother’s concoctions (and maybe she’s also alive at this time😊, AMEN!), drank water, ate well and you were obedient to the ten commandments( most importantly, you obeyed mom and dad). Good thing, right? But here’s the challenge, when you hit 81, you’ll probably have used up all your savings. You start depending more on your kids and grand kids for basic items, which is okay.In fact, I think in our African culture it “comes naturally”(didn’t know other proper words synonymous to,”inakuja tu”) that your kids will be your greatest aid at old age.

A recent report by the World Economic Forum Investing in (and for) Our Future indicates that people are living beyond their life expectancy; that the probability of you and me and most old people living beyond that 80 mark (just an example) is increasing. In Kenya, for instance, the average life expectancy is now at 66.7 years and getting better. Again, totally good news!

But with the financial challenges that come with this blessing, I thought of us looking at two of the most common financial products available in mitigating longevity risk.

ANNUITIES

Put simply, an annuity is a consistent stream of cash flow that you receive in a period of time. Most, if not all, insurance companies offer annuity products. How annuities work is that instead of receiving a lump sum pension payment on retirement, you receive some amount of income, periodically, during your sunset days. It’s like a salary; constant stream of income. And it’s assured. It helps instilling discipline on your spending habits since in the contract, you agree to only receive a specific amount say, monthly. Annuities guarantee you payments as long as you live and for any remainders, your beneficiaries will receive.

INCOME DRAWDOWN PLAN

An alternative to receiving a consistent stream of constant income is to receive “growing/increasing” monthly payouts. For this product, once you receive your pension payment on retirement, you invest this amount in an investment fund that gives you the opportunity to grow your returns. Just like the annuity product, you’ll be receiving an amount every month but it will be more as time goes by. The amount you receive is able to factor in changes in inflation which in my opinion is the better of the two.

Quite short today but those are the two products that I came across in helping individuals mitigate this risk (specifically from business daily). There might be more and if you know of any, please share and engage us in the comment section😊🎓.

That’s it for today. As always, I’m truly grateful for the support, feedback and your time to read through. I appreciate❤.

Till next blog, be blessed and have a blissful weekend.