Global Retirement Survey
How financially prepared are Hongkongers for retirement?
Understanding your current retirement savings status is an important step to planning for your golden years. To better understand retirement readiness across regions and identify key actions that should be taken to accomplish retirement goals, Fidelity International recently conducted a global retirement survey in six developed regions.
The survey results reveal that, like most regions, Hong Kong workers are generally not “on target” to sufficiently cover their basic expenses. If no changes are made, they will be unlikely to be able to maintain their pre-retirement lifestyle once they have retired.
What is the Fidelity Global Retirement Survey?
The Fidelity Global Retirement Survey is a comprehensive online survey, with responses from nearly 14,000 workers across the United Kingdom, Germany, Japan, Hong Kong, Canada and the United States.
Based on our retirement survey data and methodology, we have calculated a Fidelity Retirement Readiness Score for each region, which ranges from 0 to 150+. This score indicates whether if people are on track to maintain their pre-retirement lifestyle in retirement. The higher the score, the better prepared they are to cover their estimated expenses in retirement.
Most workers not ready for retirement
The median Retirement Readiness Scores across the regions surveyed range from 73 to 83. The regional scores suggest that most workers across regions are not on track to sufficiently cover all their estimated retirement expenses and are likely to make at least modest adjustments to their desired lifestyles in retirement.
In addition, respondents expressed that the retirement planning process is very complicated, and many feel “they don't know where to start” or “haven’t thought about retirement yet”. A lack of financial knowledge is also one of the main barriers to planning for their retirement.
Retirement Readiness varies widely in Hong Kong
The median Retirement Readiness Score for Hong Kong workers is 75, which is considered “fair”. This indicates that Hong Kong workers are on track to cover only 75% of Fidelity’s estimate of their required retirement expenses and, without any changes, would not be able to maintain their pre-retirement lifestyle after they retire.
It is worth noting that there is a significant difference in median retirement scores across age groups (as shown in the table below). The scores range from 53 for older workers with a monthly household income between HK$15,000 and HK$30,000, to 89 for younger workers with an income between HK$30,000 and HK$50,000.
Younger workers are in a stronger position with a median score of 87 across all income groups. The survey revealed that the median saving for Post 80s and Post 90s are HK$890,000 and HK$409,000. This group have a relatively higher potential retirement balance and benefits from a longer investment time span. With well-diversified asset allocation, they may be able to capture potential growth over the years, leading to higher retirement savings.
In contrast, the median score for older workers is 63 and some low-income workers in this group scored the lowest in the entire survey. A rather late start to retirement planning, as well as an excessively conservative asset allocation, have contributed to the lower scores. This shows that the older generation faces the greatest challenge in achieving retirement readiness and they may need to work longer and retire later.
Though middle-aged workers score higher with a median of 76, their retirement preparedness is still not on track. Fortunately, this group has at least a decade to enhance their readiness before reaching the legal retirement age of 65.
Key pre-retirement steps to improve retirement readiness
We have identified three key steps that may help workers improve their retirement readiness:
- Raise savings – The study reveals that Hongkongers’ median savings rate is 19% of their pre-tax annual income (excluding MPF contributions1). Fidelity’s Retirement Savings Guidelines suggest that, in general, Hong Kong workers should save 20%2 of their annual income for retirement. The more workers save, the higher the probability of reaching their retirement goals.
Apart from private saving channels, there are options for workers to increase MPF contributions voluntarily, such as Tax-Deductible Voluntary Contributions (TVC). Our research reveals that 40% of respondents are motivated to increase their retirement savings due to tax incentives like TVC. Fidelity launched the TVC scheme in April 2019 — to learn more about it, please click here.
- Review asset mix – Our analysis finds that some Hong Kong workers have extreme asset allocation. For example, 48% of younger workers have 25% or less allocation to equities, while 22% of older workers invest at least 75% of their holdings in equities. It shows that their investment strategy is either too aggressive or too conservative, which will impact retirement readiness. Following an age-appropriate strategy with well-diversified asset allocation can help build a portfolio with long-term growth potential, thus boosting the retirement readiness score.
- Revisit retirement plan – Working longer gives people more time to accumulate savings. According to the survey, the median target retirement age of Hong Kong workers is 63. However, they should consider delaying their retirement to age 65.
Taking the above three key steps, the median Hong Kong Retirement Readiness Score could potentially increase to 119 — categorised as “on target” to cover estimated retirement expenses. Not all these steps are possible or necessary for all workers. However, when circumstances are appropriate, those who take as many of the steps as early as possible before retiring may benefit greatly.
1 Based on an assumed 5% contribution each from employee and employer, for a total of 10% contribution.
2 Fidelity Retirement Savings Guidelines is based on four key metrics - savings milestones, savings rate, income replacement rate and probable sustainable withdrawal rate. Fidelity Retirement Savings Guidelines suggest that people in Hong Kong should save 12 times their annual income by the age of 65 and save at least 20% of pre-tax income in order to maintain their current lifestyle in retirement. The Fidelity Retirement Savings Guidelines are for reference only and certain assumptions are applied.
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About the Fidelity Global Retirement Survey
The survey population consisted of respondents with the following qualifying conditions: individuals aged 20-75 years old; working full-time or part-time or have spouse working full-time or part-time; not retired; expecting to retire someday; with or without retirement savings; the main financial decision maker or equal joint main financial decision maker in the household; a minimum household income of United States: $20,000 annually; United Kingdom: £10,000 annually; Germany: €20,000 annually; Hong Kong: HK$15,000 monthly; Japan: ¥3,000,000 annually; Canada: CA$10,000 annually.
The research and analysis were completed for the United Kingdom, United States, Canada, Germany, Hong Kong and Japan. Data collection was completed in partnership with Ipsos, a global market and opinion research specialist, who collected and collated data for each region in September 2019.
About the Fidelity Retirement Readiness Score and pre-retirement steps
The Retirement Readiness Score offers a simple, intuitive, standardised (consistent and comparable) measure of the degree to which one is financially on track for retirement, as well as a means of evaluating the potential improvement associated with improved retirement behaviours.
The goal is to gain a better understanding of where workers across the world are today when it comes to retirement readiness and how this readiness varies within a given region. Our analysis looks at retirement savings and spending, not only to provide a more comprehensive picture of the state of retirement readiness, but also to offer people specific steps that can be taken to improve their likelihood of living the lifestyle they expect in retirement.
The score is based on a 150-point scale where zero indicates a person is projected to be unable to meet any of the retirement expenses estimated to be necessary to maintain one’s pre-retirement lifestyle in retirement and 150 means a person is projected to be able to meet 150% of those retirement expenses.
The Fidelity Retirement Readiness Score is calculated using Fidelity’s proprietary methodology which consists of region-specific modelling assumptions that are applied to survey data. More specifically, the methodology looks at age, marital status, gender, asset allocation, savings rate, accumulated savings, other income sources, retirement age, and life expectancy to estimate income needs in retirement. The estimated income needs, determined through Fidelity’s evaluation of national income and expenditure data, taxation and pension data are then compared to projected retirement savings balances and other income sources to determine the extent of retirement readiness.
The three key pre-retirement steps — raise savings, review asset mix, and revisit retirement plan — applied individually, or in combination, will have a positive impact on retirement readiness. The impact of increasing savings and adopting an age-appropriate asset mix will be greater for those further from retirement due to the longer remaining accumulation period. Retirement readiness will benefit to a greater extent when the impact of these positive actions can play out over a longer period. Improvements can vary significantly based on how far one’s current behaviours/plans deviate from the targets associated with each step and how much time one has between one’s current age and planned retirement for the potential benefits to manifest themselves. The impact of the steps can vary from country to country depending on the current and projected savings amounts, asset allocation and estimated retirement ages reported by survey respondents.
This information is intended to be educational and is not tailored to the investment needs of any specific investor. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment or action.
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