Retiring in Hong Kong: mind the expectation gap

June 19, 2020

 

For most people in Hong Kong, a question that comes to mind about retirement is “do I have enough money to retire?”.

Findings from a recent J.P. Morgan Asset Management survey revealed that people of different generations have varying levels of expectations.


A generation gap


As of October 2019, Hong Kong people aged 30 to 40 estimated that they could retire by the age of 61, on average, and thought HK$3.6 million would be sufficient. In contrast, those aged 51 to 60 expected that they could retire at 64, and need HK$4.3 million - a difference of HK$700,000.

 

Simply put, Hong Kong’s millennials are planning to retire earlier, but think lower savings would be sufficient to fund their retirement lifestyles. 

Such expectations come at a time when their life expectancy is likely to be longer than their parents’ generation. As it stands today, life expectancy for a 65-year-old in Hong Kong is already around 85 years old for men, and 90 years old for women. 

And younger people in the city are expected to have an even longer lifespan, which means their smaller retirement nest egg would need to be stretched over a longer retired life, exposing them to higher risk of outliving their savings.


“Do I have enough money to retire?”


Taking into account the impact of inflation, and assuming that a retiree stays invested after retirement, stretching HK$3.6 million across 30 years would equate to a monthly spending budget of HK$12,700. But this could decline to HK$6,600 a month if the retiree stops investing. 

By comparison, census data showed an average retired couple in Hong Kong could generally spend a total HK$20,000 a month. This average is likely higher today as the data available was dated 2014-2015.

For the younger population, there appears to be a gap in expectations and reality on their funding needs for retirement. 

 

A wakeup call?

 

As the younger generation may have less realistic expectations on retirement needs, only half of the younger respondents have started saving for retirement beyond the Mandatory Provident Fund or the Occupational Retirement Schemes Ordinance programmes, our survey found.

Meanwhile, as the older generation approaches retirement, they may gain a more realistic idea about what their life in retirement would entail as 95% of the older respondents stated are already saving. 

 

Call to action

 

For younger workers in Hong Kong, there appears to be a gap in expectations and reality on their funding needs for retirement. But time is on their side and they could optimise the power of compounding.

We suggest younger workers could start saving for retirement earlier, consider different ways of investing and stay invested to help reach their retirement goals. 

 

Wina Appleton, J.P. Moragan Asset Management

Feb 2020

 

 

 

 

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