The Covid-19 pandemic has unleashed a global economic crisis that has had a dramatic impact on all aspects of society and life.
In Hong Kong, the unemployment rate is at its highest in 16 years and is expected to edge up to near 7% around the Lunar New Year1. As the economic situation remains uncertain, even those who remain employed have seen their income affected.
A recent desired retirement tracker survey reveals that 55% of respondents have had their income affected by the pandemic, and 38% have used their retirement reserves to meet daily expenses. The survey also reveals that for those with insufficient retirement reserves, the median retirement reserve shortfall has reached a record high HK$2.23 million (US$287,617). Some 61% of respondents say they will have to delay their retirement plans.
Focus on the future
According to Elaine Lau, chairman of Hong Kong’s Pension Schemes Association (PSA), while many have seen their retirement plans derailed by the pandemic, it is more important than ever to get them back on track.
“Retirement planning is a long-term challenge,” she explains. “While it may be necessary to respond to short-term events and to make difficult decisions about our financial plans, we must always bear in mind how tapping into our savings in the short term will affect our long-term financial well-being.”
As the new normal takes hold and a vaccine rollout lifts hopes for an economic recovery, Lau urges employees to refocus on the future and put their retirement plans back on course.
“Don’t be afraid to review your retirement plans to see what suitable adjustments you can make,” she advises. “In these turbulent times, set achievable goals that allow you to meet urgent needs while still steadily building a secure nest egg. Find a balance between flexibility and security to reconcile your immediate and future needs.”
For those who can afford to do so, it remains critical to commit to a disciplined saving habit as this will help them build a more secure safety net. Making Tax-deductible Voluntary Contributions (TVC) to the Mandatory Provident Fund is a good idea. In addition to tax deduction benefits, TVC offers employees the flexibility to adjust their contribution modes and amounts according to their own preferences, needs and situations. With a variety of fund choices and a relatively low contribution amount requirement, TVC provides a smart and convenient way to enhance retirement protection.
When the pandemic and economy stabilise, employees should seize the first opportunity they have to reexamine their retirement plans and increase their savings to make up for lost time.
Post-retirement medical cover
According to Our Hong Kong Foundation, the median age of the Hong Kong population will reach 51 years by 2064, with an elderly support ratio of 567 older people per 1,000 working-age population2. An ageing population will lead to greater demand for health care that can no longer be satisfied by the public system. Hong Kongers will have to turn to private medical care, which comes with higher charges.
Yet, many people only consider post-retirement daily expenses when estimating how much they need to save, forgetting that medical costs are also a big part of retirement expenses.
The latest desired retirement tracker survey found that 28% of respondents do not know how to, or do not budget, for post-retirement medical expenses. This result is similar to the 26% from the previous survey and suggests that the pandemic has neither increased awareness of nor preparedness for long-term retirement healthcare.
As the Hong Kong population grows older and more vulnerable to chronic illnesses, post-retirement medical expenses are a critical factor in any retirement plan. Medical emergencies such as stroke, cancer, or heart disease can often incur up to hundreds of thousands in treatment expenses and can be a significant drain on hard-won retirement savings.
“Adequate post-retirement health protection is critical to ensuring good health and financial well-being,” Lau says. “You need a plan that can address all your post-retirement health-related concerns so you can have the quality of life you envision when you stop working.”
Towards a happy retirement
A well-planned retirement is a happy retirement. While the pandemic has forced many to put their retirement plans on the backseat to deal with more immediate needs and concerns, the health crisis is, at the same time, a wake-up call to address protection goals as quickly as possible.
Do a check-up of your retirement plan, continue to save and contribute, and stay the course. These three steps will help you weather the pandemic and strengthen your financial resilience for a better future.
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