-- Asia investors underestimate their life expectancy by up to 5 years
-- Investors perceive their retirement expenses will be two-thirds of current income, but actual needs will likely be much higher
-- More than half plan to work during retirement, but their ability to do so is overestimated
HONG KONG, Jan. 27, 2014 /PRNewswire/ -- Fortified by the belief that they will be able to continue working beyond the official retirement age while their expenditure will stay around two-thirds of their current salaries, the prospect of retirement for the majority of Asia investors is one of promise rather than dread.
The findings from the latest Manulife Investor Sentiment Index survey,(Note 1) released today, reflect investor optimism about retirement as a time for leisure, travel and being with the family, combined with a little work to top up funds. Investors also tend to anticipate retiring a few years early. These expectations, however, are in many cases overly optimistic, pointing to a mismatch with reality.
In three key areas, the survey findings show investors making misjudgments about their retirement with regard to the actual duration of their retirement, day-to-day expenditure during retirement and their ability to work.
Longer lives, longer retirement
On the upside, many investors underestimate their longevity. Life expectancy data (Note 1) shows that the survey respondents are likely to live up to five years longer than they anticipate. The downside is that their retirement savings will likely run dry before that happens.
"Sadly, many are eyeing the wrong target and realize the mistake late in the day, so they end up delaying or trying to delay retirement," said Robert A. Cook, President and CEO of Manulife Financial in Asia. "We see in the survey those in their twenties expecting to retire at 58 and that creeps up to 65 by the time they're in their sixties. As they grow older, they realize they'll live longer. A large number of our survey respondents -- even those who have been actively investing for retirement -- also say they wish they'd started planning earlier or saved more from the outset."
Saving for retirement stood out as a top priority for investors in all the markets covered in the survey, apart from in Malaysia, with nearly two-thirds believing they certainly or probably will be able to afford a desirable retirement. But, based on investors' own estimates, a gap exists between savings and retirement expenditure amounting to about six years.*
Retirement expenditure to exceed expectations
Survey respondents said they expect retirement expenses to average 64 per cent of their current income, but in reality they will likely be much higher. This has not yet hit home with Asia investors for whom retirement is seen as a time when they are free to do what they want (48 per cent), enjoy what they have earned in earlier years (41 per cent), and spend more time with family and friends (40 per cent). Attitudes towards retirement are predominantly positive, with the dark cloud of old age and poor health only a top-three consideration for investors in Indonesia (40 per cent) and Hong Kong (34 per cent).
"Indonesian and Hong Kong investors are wise to have healthcare costs on their radar," said Michael Dommermuth, President, International Asset Management at Manulife Asset Management. "I think we're all aware of it from personal experience with family or friends, but the reality is that medical prices have risen in Asia at about twice the rate of inflation over the past 10 years. In fact, World Health Organization data (Note 2) shows health spending per person in China has risen nearly six-fold in the last ten years. In Singapore, it's nearly four times higher and in Indonesia it's over five times higher. Healthcare is very expensive and you need more of it as you get older."
Ability and willingness to work in retirement overestimated
The Manulife survey also shows more than half (54 per cent) of investors expect to work full- or part-time during 'retirement'; for another six years, on average, until the age of 66. Singaporean investors expect to continue working the longest, with another nine years of 'post retirement' work until age 70.
The majority of investors across the region see working in retirement in a positive light: a way to stay active, connected and healthy. Very few say they have no choice but to work, but in reality they may not be able to work whether they want to or not.
"Research reveals that elderly labor employment levels are generally well below the level the survey findings point to," explained Mr. Dommermuth. "In North Asia, elderly labor participation ranges from 8 per cent in Hong Kong and Taiwan to 20 per cent in Japan.(Note 3) This could be because although retirees want to work, they may be increasingly selective about the jobs they take, waiting to find a position that is line with their personal interests, offers a flexible schedule and is less physically demanding. Or their ability to work may be limited due to elderly-related health issues."
In contrast to investors' expectations that they will work past retirement, the 65-plus age group as part of the workforce in Asia's developed economies has been shrinking, not growing. In Hong Kong, for example, it has dropped to about 40% of what it was 30 years ago.
Yet, while the retirement prospects for Asian investors may appear daunting, with planning they are generally well placed to deal with the situation.
"When compared to their North American counterparts, Asian investors tend to be better off in terms of wealth relative to current income," said Donna Cotter, Head of Asia Wealth Management. "But they don't deploy their wealth as well as the Americans -- an example being Asians' habit of hoarding excessive amounts of cash, which loses value, instead of investing it. With attention and planning, Asian investors can improve their retirement outlook in a relatively painless way."
Notes:
-- Manulife Asset Management; UN Population Division; National Statistics, Taiwan.
-- World Health Organization National Health Account database, 2011
-- International Labour Organization, Q3 2013 Estimates (except Japan, which is 2012); National Statistics, Taiwan
For more findings and related information from the Manulife Investor Sentiment Index in Asia, please visit
http://www.manulife-asia.com.
(Note 1 ) About Manulife Investor Sentiment Index in Asia
Manulife's Investor Sentiment Index in Asia is a quarterly, proprietary survey measuring and tracking investors' views across eight markets in the region on their attitudes towards key asset classes and related issues.
The Manulife ISI is based on 500 online interviews in each market of Hong Kong, mainland China, Taiwan, Japan, and Singapore; in Malaysia, Indonesia and the Philippines it is conducted face-to-face. Respondents are middle class to affluent investors, aged 25 years and above who are the primary decision maker of financial matters in the household and currently have investment products.
The Manulife ISI is a long-established research series in North America. The Manulife ISI has been measuring investor sentiment in Canada for the past 14 years, and extended this to its John Hancock operation in the U.S. in 2011. Asset classes taken into Manulife ISI Asia calculations are stocks/equities, real estate (primary residence and other investment properties), mutual funds/unit trusts, fixed income investment and cash.
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