Assess your assets
Typically, this part of the exercise starts with an assessment of your assets and liabilities. In the three-phase model, we need to think about both of these concepts differently. For example, your liabilities (financing your lifestyle needs) will be different for each of the three phases: housing, care, medical care and transportation costs are all likely to place different financial demands on you at each phase.
So, too, should your definition of assets change. Here we are asking you to think more holistically about what will be required to get the very best out of this period of your life. This isn’t just about your finances, though. A helpful way to think about these assets is to break them down as follows:
- Productive assets: what could you continue producing for both yourself and your family during each phase?
- Vitality assets: what would you need to do to keep yourself healthy and happy?
- Tangible assets: this is the money, car and home part.
- Transformational assets: how do you ensure that you continue to grow in terms of knowledge, relationships and overall stimulation?
Now we can consider how to solve for your first active period, your second, more passive period and, finally, the frail-care period.
What makes financial planning here so difficult?
What is missing from this financial planning exercise is the greatest unknown of all: your health and its future prospects. As Figure 12 illustrates, the variability in outcomes for one’s physical well-being over this period are enormous – from having the physical strength of a 25-year-old to being on the verge of complete immobility. This will be the most significant financial factor of all. The only way to mitigate it is to be clear about exactly what is covered by your medical aid and what is not, and to be knowledgeable about the potential costs of long-term care.
Address the possibility of dependence
What makes decision-making for these three periods particularly complex is the fact that at some point in this three-phase end-run you will become dependent on the help of others. At what point this will be true will be a function of your health and mental state. Typically, the transition to the help of others occurs somewhere between the second and third phases. But it will come, unless the proverbial bus gets to you first.
This means that, by necessity, decisionmaking here is best done with those ‘others’ in mind: family, the community, friends, caregivers or medical professionals or, better yet, with them being part of the discussion. This dependence on others may be from the perspective of physical need: mobility, sight, hearing or just general getting-outand- about issues. It may relate to financial issues, household or personal care, or to the emotional demands of solitude or dementia. The care of others will somewhere be needed. The more you know about what might be available to you when that time comes, the more effective your planning will be.