Financial hardship in retirement ahead
30 October 2013
Category: News, Asia
By Asia Asset Management
A gaping savings hole between the expected savings and actual retirement needs of Asia investors points to financial hardship in retirement for many, according to the latest Manulife Investor Sentiment Index.
According to the survey, based on 3,500 interviews across seven Asia markets, retirement planning is the most cited financial priority among Asia investors. However, many are leaving it too late and nearly half say they have no financial plan for their retirement at all. As a result, a large proportion of investors are relying on fall-back options, such as extending their working life or drawing on their children's support, which may not prove reliable.
Commenting on the findings, Robert A Cook, president and CEO of Manulife Financial in Asia, said: "For anyone leaving it until later in life to start planning for their retirement, making up the shortfall will become harder and harder. The reality is that, without a clear plan, it won't be alright on the night."
Up to 13-year retirement gap
Asia investors on average expect to depend on retirement savings for an average of 19 years, but the amount they claim they will have saved by the time they retire will cover only 13 years – a six-year shortfall. In some markets the gap is even higher, rising to 13 years in Japan, where 71% of investors were not confident of being able to afford a desirable retirement, a sentiment shared by nearly a third of investors regionally. And since Asians are living longer and longer and commonly underestimate their longevity, it is highly likely that for many the retirement gap will end up being even greater. It points to years of retirement hardship for many, if retirement is actually an option at all.
Many Asia investors are either leaving their retirement planning too late or not starting to plan at all. Of those who have started planning (55%), about one-in-five did not start until a few years before retirement, while another quarter waited either until having children or until their children had finished school. Of the 45% of investors who do not yet have a plan, nearly half said they would wait until their children had finished school or until they were nearly retired, while another fifth said they did not expect to start at all.
Reliance on work; children's financial support
Reflecting the lack of robust retirement planning, many investors appear to be relying on factors that may be out of their control, like health, the job market and other people being willing and able to help.
Across the region an average 55% expect to continue in full-time or part-time work during so-called retirement. This response was even higher in Indonesia (68%) and Singapore (69%). About one-in-five expect to rely on their children for financial support. This was particularly evident in Hong Kong (21%) and Malaysia (42%).
"We know from factors like declining fertility and household size, plus urbanisation and divorce, that the family-based support system is diminishing. So people would be wise to take charge of their own retirement needs," said Michael Dommermuth, president, international asset management at Manulife Asset Management. "Whether or not people succeed in covering their own retirement needs largely hinges on whether they take steps to plan, save and invest wisely, such as moving away from low-yielding bank deposits to investments that offer potential for better returns and income generation. In addition to bond or balanced portfolios, dividend-paying stock is increasingly demonstrating its ability to serve these objectives as well.”