While individuals, asset managers and governments across the developed world have long focused on retirement planning – i.e. saving and investing for the golden years – surprisingly little attention has been paid to decumulation planning.
As life expectancy lengthens and expected retirement spans extend, the importance of planning how to deploy accrued savings to support retirement has never been more acute.
How to invest while in retirement
How should retirees in Hong Kong invest during retirement given lengthening life expectancies and the increasing risk of higher inflation?
In January 2018, Schroders undertook a study of Hong Kong residents’ views of investment, savings and spending as they look towards retirement. The Hong Kong Retirement Research is based on interviews with 700 people, from those who were eight years before their retirement to those retired.
In the video below, Lesley-Ann Morgan, our Global Head of Defined Contribution and Retirement, shares some of the valuable insights from this latest research and highlights three key lessons to help with those who are starting to think about retirement and also those who have recently retired.
Schroders believes addressing the post-retirement challenge requires a two-pronged approach:
Crafting a decumulation strategy that works
In our study of decumulation strategies worldwide, including in Hong Kong, we found that every individual faces a balancing act between addressing the features they need and those that they want.
In searching for this balance, Schroders works with employers and sponsors to consider the tools plan participants have at their disposal, which comprise three key options:
Creating a tailored decumulation strategy
There is no single option that produces a suitable solution for everyone. Rather, any given post-retirement decumulation strategy is likely to utilise a combination of these options in order to meet the key needs of individual retirees in Hong Kong. Schroders believes there are four key areas where such a solution must deliver:
Default to a tailored decumulation plan
With so much uncertainty surrounding post-retirement planning and myriad options available, an ongoing debate in the asset management industry surrounds the potential for governments and employers to offer a “default decumulation strategy”.
While the simplicity of this approach is appealing, Schroders believes planning a decumulation strategy for any one individual is simply too complex for such a prescriptive approach to work as:
In fact, our research and discussions with stakeholders suggests that an individually tailored post retirement plan is the only plan that should be considered “default”.
This does not mean leaving plan participants at sea amid a hundreds of potential decumulation plans. Rather, Schroders suggests providing retirement plan participants with a short-list of appropriate plans that have the potential to deliver longevity protection despite continued inflation and the potential for capital market volatility.
To explore the key considerations for decumulation planning further, please download our reports using the buttons below.
Our business is structured around a number of strategic capabilities, which combine to meet a variety of client requirements. Please visit the Strategic Capabilities - Retirement page to discover how we help our clients improve their retirement journey.