- Manulife Investment Management launches Retirement Income Forecaster to help people recognise and meet their retirement income gap.
- Short- and long-term macro challenges highlight need to create sustainable retirement income stream.
HONG KONG – Today, many Hongkongers are taking different measures to financially prepare for retirement, through the Mandatory Provident Fund (MPF) scheme, savings, and separate investments, with the aim of creating a sustainable post-retirement income stream. Research from Manulife Investment Management revealed that, in general, working Hongkongers are likely to get a recurring retirement income of less than one-third of their current income when they retire.
The finding is according to the newly launched thought leadership campaign titled “Diverse Asia” which features the Retirement Income Forecaster, a proprietary tool that helps people project their anticipated monthly retirement income based on current age, salary, and investable assets, including their MPF contributions. The Retirement Income Forecaster allows users to see how their expected retirement income could change at different life stages, which can help them identify the financial gaps and actions needed to secure the retirement lifestyle they envision.
Emilie Paquet, Head of Strategic Initiatives and Innovation, Multi-Asset Solutions, Manulife Investment Management, said: “The Retirement Income Forecaster is a tool that integrates our firm’s proprietary capital market assumptions and leading investment portfolio data. Based on our state-of-the-art mathematical modeling and rigorous simulations, the Retirement Income Forecaster calculates the expected monthly retirement income that people could achieve with a good level of confidence. We believe this tool could help users realize how much they could potentially save for retirement based on their current status, and take appropriate steps to better plan their financial future.”
Using the Retirement Income Forecaster, Manulife Investment Management looked at four general scenarios of working people in Hong Kong, which showed that their projected retirement income could be far less than what they are currently earning:
- Scenario 1: A person at age 32 who has found a stable career which is starting to take off currently earns HK$29,200 per month and has investible assets of HK$750,000. Based on this, the expected monthly income in retirement is HK$9,200.
- Scenario 2: A double income couple with young kids, of which Partner A is aged 42 with a current monthly income of HK$62,500 and investment amount of HK$1.5 million, and Partner B is aged 37 with a current monthly income of HK$41,700 and investible assets of HK$1 million. Their combined expected monthly income when they retire will be HK$22,800.
- Scenario 3: A person at age 52 who has a successful career and likes to enjoy the finer things in life has a current monthly income of HK$166,700 and has an investment amount of HK$4 million. The expected post-retirement monthly income is also HK$22,800.
- Scenario 4: A double income couple who are about to retire. Partner A is age 64, works full time and has a current monthly income of HK$83,300 and investment amount of HK$2 million. Partner B is aged 62, works part time and has current monthly income of HK$20,800 and investible assets of HK$2 million. Their combined expected monthly income when they retire in a few years’ time will be HK$14,300.
A separate survey commissioned by Manulife Investment Management found that people in Hong Kong expect they need an average of HK$21,287 per month to maintain a comfortable lifestyle in retirement. This sum represents their “ideal” retirement income amount and is approximately 73% of their current income.1
One of the reasons attributable to the huge retirement income gap between ideal versus reality is Hongkongers’ preference for cash holding and bank deposits. According to the same survey, Hongkongers on average allocate 41%1 of their household assets to cash and bank deposits.
Elvin Tharm, Senior Managing Director, Head of Retirement Proposition, Strategy and Transformation, Asia Retirement, Manulife Investment Management, said: “There is clearly a huge gap between Hongkongers’ expected retirement expenses and the amount of retirement income they could confidently achieve per their current financial status. People in Hong Kong, and in fact across Asia, are facing a challenging situation in bridging this gap. With inflation, medical costs, and prices of daily necessities on the rise, their retirement savings and income will erode over time.
“Hongkongers who are holding a large amount of cash and bank deposits before retirement, and those who plan to withdraw the lumpsum of their retirement savings once they reach age 65 could be most at risk of not having enough in retirement. This comes to show there is an imminent need for people to better plan for their financial well-being and an effective way to produce recurring income when they retire.”
Macro challenges: Elevated inflation, weaker growth and tighter policy
Inflation has always been the key issue in retirement, and recently markets around the world has seen the detrimental impact it could have on people’s livelihood.
In the short term, Manulife Investment Management expects food and energy inflation likely to remain high, and goods and services that are interest rate-sensitive could experience disinflation. In addition, concerns about slowing economic growth are on the rise, and the team expects to see a recession in developed markets and a weaker-than-expected economic recovery in parts of Asia.
Longer-term, Manulife Investment Management still expects inflation to continue to ascend, albeit moderately, mainly driven by global and supply side factors. This will be challenging for central banks to combat and could push them to accept higher inflation over the long run.
Sarah Lu, Senior Portfolio Manager, Multi-Asset Solutions Team, Asia, Manulife Investment Management, said: “An ideal macro environment for retirement is low inflation coupled with higher yielding investments. What we are experiencing now is that inflation will likely stay elevated for an extended period of time though Asia generally has a more benign inflationary environment than developed markets. High inflation typically reduces the purchasing power of an investment portfolio over a longer period. That said, we believe the Fed and other major central banks will begin cutting rates in Q3 2023, at which policymakers will shift their focus from tamping down inflation to addressing growth concerns, with the potential for greater policy certainty to support the economy and markets in the second half of next year.
“In times of uncertainty and volatility, investors should consider long-term income-oriented and diversified multi-asset strategies when planning for retirement. This allows them to seek and capture sustainable income from higher yielding assets, as well as potentially benefiting from capital appreciation opportunities that may arise across geographies and sectors which can produce real returns on top of inflation.”
Elvin Tharm added, “Given the anticipated challenges in the macro environment over the short and long term, people should invest early and stay invested – even during retirement – to create the sustainable income stream needed in retirement. Investment solutions that re-invests capital gains and income can potentially generate investment returns and real yields that can help them address longevity and other retirement-related concerns.
“Hongkongers may also consider taking advantage of the Tax-deductible Voluntary Contribution (TVC) programme under the MPF scheme and setting up a separate investment portfolio dedicated to retirement savings to supplement their MPF. This may provide the additional safety net and flexibility in managing their finances in retirement. We are pleased to see that 55% of the people we have surveyed are already taking part in TVC or have a private retirement scheme1.
“We encourage people to use the Manulife Investment Management Retirement Income Forecaster to find out their expected monthly retirement income, identify the financial gap with achieving their ideal retirement lifestyle, set objectives, and seek for the most appropriate investment solutions.”