Asian millennials better start saving pronto
22 February 2017
Category: News, Asia, Global
By Asia Asset Management
One-in-ten millennials in Asia is expected to run out of money later on in life, and nearly four-in-ten expect to carry mortgage debt into their retirement years, as Asian millennials are said to currently save only one-third of what is required to sustain them in old age.
This is according to a survey conducted by Manulife, which polled 1,000 respondents in Asia aged 25 and above, who are middle classed and within the affluent category.
“Asia's millennials are naturally optimistic about their retirement as many will have grown up in an era of unprecedented economic development. With that prosperity comes a longer and better quality of life and with that, higher expectations of the future,” says Roy Gori, president and chief executive officer of Manulife Asia.
"But the economic model that underpins our current understanding of retirement is quickly changing. Young people today will need to start saving, and investing, sooner rather than later. Otherwise they face a retirement of anxiety, not adventure," he adds.
The findings reveal that on average, millennial investors expect to accumulate just 8.2 times their annual income by the time they retire, in contrast to the “25 times” benchmark – or 25 times the amount one expects to spend in the first year of retirement.
“Millennials may have been led to feel a sense of optimism for an improved post-retirement living standard, which is potentially misplaced. Younger generations should plan strategically to begin accumulating wealth early," comments Michael Dommermuth, head of wealth and asset management of Asia at Manulife.
Meanwhile, family and health burdens are concerns that will strain millennials’ retirement savings, says the report, as 38% of the survey respondents expect to financially support both their parents and children at the same time, and 39% expect healthcare to become too expensive during retirement. In addition, 43% expect their health to deteriorate to a point where they can no longer work.
"It's sobering to see how many investors, especially young people, recognise that there are risks to their retirement. Longer lifespans and later retirement will place increasing demands on investment funds, for which every investor should start planning ahead early for future protection," notes Mr. Dommermuth.
In terms of financial security, many millennials look to real estate, with 45% of the respondents expressed their intentions to purchase local property across Asia and seek to generate rental income from it.
However, Mr. Dommermuth underlines that millennials may need to take a different approach from previous generations in the real estate sector.
“Younger investors looking to address their retirement shortfall should reconsider their investments in the context of rapidly maturing, or already mature, real estate markets,” says Mr. Dommermuth.
"Millennials that invest in emerging Asia will likely fare better than those who buy a home in maturing Asia, where slowing growth and ageing populations can dampen real estate markets. They owe it to themselves to consider every option available to them in order to plan more effectively for their future."
In another research conducted by CBRE, which polled 5,000 young adults between the ages of 22 to 29 in the Asia-Pacific region, it was found that these millenials spend two-thirds of their income on leisure while saving only one-fifth. However, bumpy economic recovery, slower wage growth and uncertainties in the employment market, has prompted 33% of respondents to save more over the next three years.
“However, their intention to save is heavily influenced by their desire to own a property in the future, especially when wage growth is lagging behind the appreciation of property prices”, states the report.
In terms of home ownership, 65% of the CBRE’s respondents plan to buy property in the future, despite almost two-thirds of these young adults still living with their parents. However, wealth accumulation remains a major challenge, as surging property prices are outstripping wage growth and making it extremely difficult for Asia-Pacific millennials to accumulate the necessary capital to buy their own home.