Asian millennials face cash shortage at retirement – Manulife

The average millennial expects to accumulate only one-third of what is typically required for retirement, according to the latest Manulife Investor Sentiment Index

Rappler.com

1:57:51pm February 22, 2017

1:59:13pm February 22, 2017

MIXED SENTIMENT. While millenials in Asia are braodly optmistic about retirement, a significant number don't think they will be able to accrue the recommended 25x annual salary once they leave the workforce. File Photo / Rappler

MIXED SENTIMENT. While millenials in Asia are braodly optmistic about retirement, a significant number don't think they will be able to accrue the recommended 25x annual salary once they leave the workforce. File Photo / Rappler

MANILA, Philippines – Asian millennials risk being short of cash in their later years, with a significant number of them expecting to still be paying for mortgages upon retirement.

This was the main finding of a survey conducted by financial services giant Manulife among millennial investors, the results of which were made public on Tuesday, February 21.

The survey was part of the Manulife Investor Sentiment Index (MISI), a quarterly survey that measures the views and attitude of investors across 8 markets on key asset classes and issues related to personal financial planning.

The data revealed that millennials have very mixed expectations about the quality of their financial future. While millennial investors are generally optimistic about their retirement – 9 out of 10 (89%) say they expect to be able to maintain or improve their standard of living in retirement – nearly one-third or 30% also expect to run out of money later on in life.

This is because the average millennial expects to accumulate only one-third of what is typically required for retirement, according to the survey.

A rule of thumb, according to Manulife, is to accumulate around 25 times the amount one expects to spend in the first year of retirement. Yet the survey showed that, on average, millennial investors expect to accumulate just 8.2 times their annual income by the time they retire. 

"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,” said Roy Gori, president and CEO of Manulife Asia in a statement.

"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," he explained.

Concerned about health and family

This is not to say that millennials are not aware of the possible expenses they will incur upon retirement. Nearly 4 out of 10 (38%) expect to financially support both their parents and children at the same time – something that will significantly constrain their ability to invest and prepare for life after work.

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

Younger investors are also slightly more concerned than older generations about the impact of health on their finances.

Many millennials (39%) expect healthcare to become too expensive during retirement, and more still (43%) expect that their health will deteriorate to the point where they can no longer work.

Despite these challenges, however, 71% of millennials expect to work in retirement compared to only 66% of older investors.

Still betting on rent

Real estate also continues to be seen as the safest investment option for retirement for many investors, including millennials. Nearly half (45%) of millennial investors say they intend to purchase local property across Asia in order to generate rental income from it.

Manulife head of wealth and asset management Michael Dommermuth warned, however: "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.”

He added: "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."

The latest MISI was based on 500 online interviews each in Hong Kong, China, Taiwan, Thailand, Singapore, Malaysia, and the Philippines, and 5,00 face-to-face interviews in Indonesia. These were carried out between September and October 2016 by TNS, a leading global research firm. – Rappler.com