Global Investor Study
Why 89% of Hong Kong investors keep investing after retirement
For many, the idea of retirement means getting away from the stresses of everyday life. But with livings costs rising and interest rates low, investors need to think about how to generate extra income from their savings in retirement.
A major new study has found that 84% of Hong Kong investors not yet retired plan to keep investing after they retire. On average they will dedicate 15% of their retirement savings to continued investing.
For those retired, the figure is even higher. 89% of Hong Kong retirees allocated money to investment after retired. On average they are allocating 23% of their pension savings to investment.
Those were the findings of the Schroders Global Investor Study (GIS) 2018, which surveyed over 22,000 investors in 30 markets around the world, including 550 Hong Kong investors.
Noticed the disparity between the amount retired people were investing and the amount non-retired people thought they would invest, Lesley-Ann Morgan, Global Head of Defined Contribution and Retirement at Schroders, said: “The survey suggests retirees have to think far more about making their savings work for them in retirement than perhaps they did previously.
“There are several reasons that may explain why retirees have higher levels of investment than those still in work expect. In many regions, lower interest rates and rising inflation has reduced the value of income that bank accounts and guaranteed products can offer. People are also living longer, giving them more years in retirement that need to be funded.
“Our study shows that retirees have adapted to this reality by keeping more of their savings invested. For those nearing retirement, it shows that they may need to reconsider how they invest after retirement to meet their income needs.”
How retirement is changing
A potential shortfall in savings rates may mean Hong Kong investors need to adjust their retirement expectations, the GIS results suggest.
For instance, the impact of saving shortfall would be significant, given that Hong Kong people spend, or expect to allocate more than half (54%) of their retirement income on necessities, including living expenses (37%) and healthcare costs (17%).
Despite retirement being a top concern, Hong Kong investors’ retirement income is insufficient for them to live comfortably in retirement. Only a minority (27%) of retirees feel that they have sufficient retirement income to live comfortably.
It may have been a decade ago, but the effects of the global financial crisis are still being felt. While the global economy has recovered from the recession that followed, many of the measures brought in to prevent the collapse of the economy remain in place. That has had a big impact on the cost of living and the return on savings.
For instance, in many regions, the cost of living (inflation) is rising at a faster rate than the interest available from savings in a bank account. This is a particular problem for retirees who, in the past, tended to partly rely on the income provided by these savings. Now, whether they are just looking to supplement their retirement income or thinking of leaving some money behind, keeping more invested might be their best option.
Investment returns affect how much income retirement savings can generate. While history does not provide guidance for future returns, it offers food for thought. An arbitrary rule of thumb in the US, coined by adviser William Bengen, has been that 4% was the ideal amount to withdraw from a pension – starting at a withdrawal rate of $4,000 from a $100,000 portfolio and rising with inflation. Withdrawing any more runs the risk of savings running dry within 30 years.
But this rule of thumb was established in the mid-1990s when the investment environment was very different from today. With lower returns and longer lifespans, reassessing this rule may be necessary and a lower figure than the 4% rule may be more appropriate, depending on your own financial circumstances.
Global Investor Study: Read the full findings
Schroders commissioned Research Plus Ltd to conduct, between 20th March and 23rd April 2018, an independent online study of over 22,000 people in 30 countries around the world, including Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, the Netherlands, Spain, UAE, the UK and the US. This research defines “people” as those who will be investing at least €10,000 (or the equivalent) in the next 12 months and who have made changes to their investments within the last 10 years.
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