Huge gap in savings and target retirement income from people under 40, according to the World Economic Forum
A recent report finding by the World Economic Forum shows almost half of the people under 40 years old claimed they would like to retire before 60, but there is a massive gap between their savings and target retirement income, which is also true in Hong Kong.
report findings of Massive Saving & Target Retirement Income Gap
Some results from the report can be found below:
Health is a top concern for more than 60% of respondents
Many younger people are likely to have to support older family members financially
Respondents over 40 years old target lower income replacement levels in retirement
People are generally unaware of how to achieve their target levels of retirement income
More men are looking forward to retirement, while more women need to understand their financial situation
Women are 55% more likely to say they don’t know if they have saved enough
44% of under-40s want to retire by 60
(Extracted from “Living Longer, Better: Understanding Longevity Literacy” Report, 8 Jun 2023)
“55% of participants have not saved enough or don’t know if they have”
“These trends show that there is a significant gap between “retirement income expectations” and “current projected outcomes”… a significant disconnect between what people ideally want and what may happen in reality. “
(Quote from “Living Longer, Better: Understanding Longevity Literacy” Report, 8 Jun 2023)
It is alarming that the respondent profiles of this study were “predominantly included those who had undertaken higher education, were in more senior positions, were likely to be in employment at major global organizations and with a high level of individual agency and financial literacy.” This shows a seriously-overlooked problem for most of the working class - a huge blindspot that needs to be addressed - proper retirement planning as early as possible.
“This shows a seriously-overlooked problem for most of the working class - a huge blindspot that needs to be addressed - proper retirement planning as early as possible.”
- Grace Chan
How to plan for retirement (passive) income
The report suggested boosting retirement savings via an auto-enrolment system for pensions. However, purely relying on the MPF scheme is not enough, especially when most don’t properly manage it.
So where shall we start? A safe way is to:
Set a retirement goal (see tips in the following section)
Have an overview of your current assets, savings, expenses, protections, etc. (ask your financial/retirement consultant for professional help)
Discuss retirement goals with your financial/retirement consultant and work on a feasible savings and investment plan together (make sure it is one that you are comfortable with, and a balanced portfolio strategy without overly relying on high-risk products)
Implement!
Annual review of the progress with your financial/retirement consultant
Retirement goal setting
Instead of leaving one-third of our life to luck, let’s start with the end goal. How much money do we want to spend per month after retirement? Multiple reports show that today’s average retired person spends approximately HK$14,000-20,000/month, excluding housing expenses. But this is only a minimal kind of living standard. Do you want to travel the world in your first 10yrs of retirement? Do you want to take the course of your dream? You can use this simple retirement calculator to understand your expected retirement living standard.
Here are some points to consider when making a retirement savings goal:
Your vision for (early) retirement - what do you want to do during your free time? What is meaningful to you? If unsure, use this worksheet in my previous post to help brainstorm.
When do you wish to retire?
Your health insurance plan
Your retirement housing plan - do you want luxurious retirement homes like these? Please also include your preferred Columbarium location (I’m not kidding! This needs to be planned too)
Would you prefer to work part-time on something you enjoy, or not work at all?
5-10yr financial buffer (longevity risk)
When to start planning and saving
A smooth and safe retirement planning should start from the first day we enter the jobs market (well, as early as possible as it is much easier with a smaller sum of savings!).
Illustration showing that the earlier you start saving (with investment returns), the less you need to save
A KOL in the FIRE movement - Mr Money Mustache is the author of The Shockingly Simple Math Behind Early Retirement. This table on the left shows how many years you have to work to retire based on your savings rate (if you make 5% investment returns and utilize a safe withdrawal rate of 4% in early retirement). As the table shows, the earlier you start, the less you need to save.
Image courtesy to Mr Money Mustache
TIME = MONEY
(especially in the case of compound interest!)
If you start working at 24 and save 40% of your income to put on suitable saving products and investments, you’ll be able to retire by 46. But if you don’t start until you’re 42, you’ll have to save 85% of your income to retire by the same age of 46.
It’s better to start when you’re younger, and you’ll never have to worry for the last half of your life. Don’t lose hope - it’s not too late for you. The later you start, the more you’ll have to invest and be more creative for ways to increase your income and reduce your expenses.
If you wish to get a retirement planning service (consultation is free!) with a lazy people’s savings and investment system, I am here to help. Book via the link here.
