Young Asian adults likely to face cash crunch in retirement

Young adults - so-called millennials - in the region are at substantial risk of a cash crunch in their later years, with many expecting to carry mortgage debts into retirement or even run out of money altogether.

This alarming picture was painted by the findings of a new survey on Asian investors in all age brackets above 25, conducted in September and October last year as part of the Manulife Investor Sentiment Index (MISI).

Despite widespread optimism about their retirement - with almost nine out of 10 (89 per cent) saying that they expect to be able to maintain or improve their standard of living in retirement - nearly one-third (30 per cent) of millennial investors expect to run out of money later in life.

Millennials are people who entered adulthood early this century.

Mr Roy Gori, president and chief executive of Manulife Asia, said: "Asia's millennials are naturally optimistic about their retirement as many will have grown up in an era of unprecedented economic development. With that prosperity comes a longer and better quality of life and, with that, higher expectations of the future.

BEYOND REAL ESTATE

While previous generations relied heavily on real estate for their retirement fund, economics and demographics mean that today's millennials need to take a different approach.

'' MR MICHAEL DOMMERMUTH, Manulife's head of wealth and asset management for Asia.

"But the economic model that underpins our current understanding of retirement is quickly changing. Young people today will need to start saving, and investing, sooner rather than later. Otherwise, they face a retirement of anxiety, not adventure."

The MISI aimed to measure and track respondents' views, across eight markets in the region, on key asset classes and issues related to personal financial planning.

The survey was based on 500 online interviews each in Hong Kong, China, Taiwan, Thailand, Singapore, Malaysia and the Philippines, as well as 500 face-to-face interviews in Indonesia.

Respondents were middle-class to affluent investors aged 25 years and above who were the primary financial decision-maker when it came to their households and their own investment products.

Manulife said that while no two investors will have the same retirement requirements, a common rule of thumb is to accumulate about 25 times the amount that one expects to spend in the first year of retirement.

Yet the survey showed that, on average, millennial investors expect to accumulate only one-third of what is typically required for their golden years.

FAMILY AND HEALTH BURDENS ARE LIKELY TO STRAIN MILLENNIALS' RETIREMENT SAVINGS

Millennials acknowledge the challenges threatening their financial security later in life. Nearly four in 10 (38 per cent) expect to financially support both their parents and children at the same time, significantly constraining their ability to invest and prepare for life after work.

In comparison, only 29 per cent of older investors expect to support their family in the same way.

Younger investors are slightly more concerned than generations past about the impact of health on their finances. Two out of five millennials (39 per cent) expect healthcare to become too expensive during retirement, and more still (43 per cent) expect their health to deteriorate to the point where they can no longer work. Despite these challenges, 71 per cent of millennials expect to work in retirement, compared with 66 per cent of older investors.

TRADITIONAL INVESTMENT MODEL NO LONGER REFLECTS REALITY OF REAL ESTATE

Many investors, including millennials, continue to seek financial security through real estate. Nearly half (45 per cent) of millennials who intend to purchase local property across Asia seek to generate rental income from it. However, their expectations of a return may not reflect the uncertain fortunes of the real estate market within the region.

Mr Michael Dommermuth, Manulife's head of wealth and asset management for Asia, said: "Younger investors looking to address their retirement shortfall should reconsider their investments in the context of rapidly maturing or already mature real estate markets. While previous generations relied heavily on real estate for their retirement fund, economics and demographics mean that today's millennials need to take a different approach.

"Millennials who invest in emerging Asia will likely fare better than those who buy a home in maturing Asia, where slowing growth and ageing populations can dampen real estate markets. They owe it to themselves to consider every option available to them in order to plan more effectively for their future."

A version of this article appeared in the print edition of The Sunday Times on February 26, 2017, with the headline 'Young Asian adults likely to face cash crunch in retirement'. Print Edition | Subscribe