New research by Hong Kong-based Sun Life Asia has revealed huge differences between two distinct groups in the retirement market - Gold Star Planners who make retirement plans and look to their later years with optimism, and Retirement Rebels who have no plans and who struggle.
The Gold Star Planners plan their expenses more than five years ahead of retirement, save more than 10% of their income for retirement, and are well-protected by insurance and pension products.
In contrast, the Retirement Rebels have no insurance and pension protection, nor sufficient planning and saving around their later years.
Furthermore, retired Gold Star planners are more likely to stay within their expected expenses (73% vs. 31%) and less likely to regret post-retirement financial decisions (14% vs. 40%).
The Gold Star group is also far more likely to consult professional sources on retirement planning including financial institutions and independent advisers, and they are more confident about their health and financial wellbeing in their later years.
Aspirations
Across all groups, the number one aspiration for retirement is spending quality time with family and friends (35%), followed by the prospect of escaping the daily grind of work and relaxing (22%), and global travel (18%). The greatest concerns associated with later years are health issues and physical decline (59%), factors that could put these dreams at risk.
The research, titled “Retirement Reimagined: Facing the Future with Confidence”, surveyed over 3,500 respondents across mainland China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, and Vietnam, about their aspirations and planning practices as they prepare for old age.
Majority are ill-equipped to deal with financial realities of retirement
The research reveals a growing desire for independent financial security in old age as retirement plans shift from state pension schemes and reliance on the family unit to prioritise individual savings and investments. Saving for retirement was cited as the number one financial goal over the next 12 months across all age groups surveyed. However, many are ill-equipped to deal with financial realities as 59% will leave planning around retirement expenses until five years or less before retirement, and a worrying 14% will not plan for this at all.
While most respondents save at least 10% of their income for retirement, an alarming 23% do not. When asked about planned sources of income in retirement, the average expectation was for 25% of income to be drawn from cash savings, underscoring a potential missed opportunity to maximise retirement income through investments and ensure it keeps pace with inflation.
Retirees caught off guard by higher costs and regret insufficient preparation
In a warning sign to future generations, 26% of retirees expressed that they had not planned their retirement expenses. This has led to 20% of retirees being caught off guard by higher-than-expected costs, a number that looks only set to grow as inflation continues to bite.
For those caught off guard by higher costs, the key factors are the general cost of living (76%) and healthcare expenses (51%). In response, many have been forced to cut spending (73%) and liquidate investments (29%).
Approximately 23% of retirees express regret over past financial decisions with the biggest reasons being not saving enough (66%), followed by not investing enough (52%), and not planning for healthcare costs (34%).
Younger generations are adjusting expectations: retiring later and saving more
Interestingly, younger respondents are increasingly aware of the looming challenge and are adjusting expectations accordingly. Current workers anticipate retiring at an average age of 64, five years later than the average age that current retirees exited the workforce (59).
Similarly, 17% of non-retirees actively have postponed their retirement plans, compared to only 8% of retirees who did the same, reflecting changing economic conditions and personal circumstances. The primary reasons for delayed retirement include the need to save more (61%), the desire to remain active (49%), enjoyment of work (46%), and increased living expenses (43%).
Those anticipating a later retirement age are more likely to cite increased living expenses (46%), compared to 19% among current retirees who delayed their exit from the workforce.
Toronto-headquartered Sun Life, of which Sun Life Asia is a part, has operations in a number of markets worldwide, including Canada, the US, the UK, Ireland, Australia, China, Hong Kong, the Philippines, Japan, Indonesia, India, Singapore, Vietnam, Malaysia and Bermuda.