Plan while you can
Turn the clock back 25 years and the retirement outlook was very different. In the developed world many retired at 60 and some were able to leave work much earlier. Company pension schemes reported surpluses and allowed contribution “holidays”.
Living in retirement is more expensive than many people think. Overall, 21 per cent of retirees experience a drop in income of more than 50 per cent
But things have changed. Life expectancy in many countries is rising fast and hopes of retiring at 60 look increasingly unrealistic. Governments are raising the official pension age. Many company schemes are in deficit and employers, hit by rising costs, have backed away from guaranteed pensions. Responsibility is falling more and more on individuals.
Many people think they will never be able to retire fully, according to HSBC’s latest report The Future of Retirement: Life after work? Those who have already retired are worried they do not have enough money to live on. People also aspire to leave a positive financial legacy for their children and grandchildren.
There are 579 million people globally who are already retired. This number is expected to treble by 2050, according to the US Census Bureau. As well as this we are living longer, often in better health and have greater expectations for our old age. While this is positive for many, it can also cause financial problems.
Since 2005, HSBC has been studying and reporting on retirement on a regular basis, surveying more than 125,000 people worldwide. Life after work?, which represents the views of more than 16,000 people in 15 countries*, found that on average the next generation of retirees expects to finish working at 59, the same as their parents’ generation. For many, this expectation is unrealistic, and 43 per cent of working-age people do not know when they will retire.
In the report*, retired people listed the best advice they had received:
· Start saving at an early age
· Start saving a small amount regularly
· Don’t spend what you don’t have
· Buy your home as soon as you can afford
· Buy only what you need
· Develop a financial plan for the future
There are other problems. One in seven of those who have retired are still funding elderly parents. So that means families have two generations living in retirement at the same time, with many also supporting their children.
Why income falls short
In the report*, causes of lower-than- expected income were:
Insufficient planning 35%
Global economic crisis 34%
Unexpected expenses 24%
Still supporting children 21%
Still supporting parents 7%
Fall in value of home 6%
Inheritance less than hoped 4%
Generating an adequate income in retirement remains a major challenge for most people, given the financial conditions created by the global economic downturn. With social security systems set to become less generous, people will need to rely increasingly on their own savings. Retirees say that on average the state makes up 37 per cent of their retirement income through state pensions or social security. On average, respondents – retired and non-retired – expect their savings to run out during retirement, and those currently in retirement expect their savings to last 12 years. This contrasts with the anticipated life expectancy of 18 years in retirement.
Living in retirement is also more expensive than many people think. Overall, 21 per cent of retirees experience a drop in income of more than 50 per cent. At the same time, 52 per cent of retirees say they continue to spend as much as, or more than, they did before they retired.
Ageing populations bring many challenges, for both individuals and countries. Many of these nations face different issues but all of them have to prepare adequately for retirement.
*The report surveyed 16,000 people in 15 countries: Australia, Brazil, Canada, China, Egypt, France, Hong Kong, India, Malaysia, Mexico, Singapore, Taiwan, United Arab Emirates, United Kingdom and the United States. The findings are based on a representative online sample covering people of working age (25 and over) and those in retirement. The survey was conducted between July 2012 and April 2013. Due to limited survey sample sizes in Egypt and the UAE, research findings on the fully retired in these two countries are not available. Unless stated otherwise, figures are averaged across all 15 countries. Monetary values are expressed in US dollars ($). Figures are rounded to the nearest whole number.
By Simon Williams
Group Head of Wealth Management, HSBC