Longevity is placing an increasing financial burden on many individuals and families across Asia, requiring new approaches to securing investment outcomes and income which can support longer retirement periods.
The need for such solutions is acute, according to the recent findings of Manulife’s global Financial Resilience and Longevity Report. It highlights growing fear across the region – in Mainland China, Hong Kong, Japan, Singapore, Malaysia, Indonesia, The Philippines and Vietnam – about the need to postpone retirement due to family commitments.
In turn, as a result of people living longer and potentially spending more years in retirement, taking concrete action in financial planning, including exploring sources of passive income, is critical during working years.
“With life expectancy rising throughout the region, it’s imperative that consumers begin planning earlier and more comprehensively,” said Calvin Chiu, Head of Asia Retirement at Manulife Investment Management. “The retirement industry, along with governments and employers, play a critical role in supporting an ageing population and helping consumers save and invest for their extra years of longevity.”
Asia’s longevity wave – the growing 65+ population
Source: Our World in Data, July 2024.
Ready to be more resilient
The report shows that more than two-thirds of people in Asia are confident they will be able to achieve their top financial goal, though this varies across markets. Yet the situation is different for the older generations, in their 50s and 60s.
This demographic faces a new reality based on pressure on healthcare, financial stability and traditional family systems, with less multi-generational support than was once the norm.
The crux of the issue is saving for retirement. Many people in Asia in their 50s and 60s struggle to balance short-term financial needs with long-term goals, according to the report. Rising healthcare costs, inflation and economic slowdown are top concerns.
Beyond those people nearing retirement age, the report finds that an average of 62% of people in Asia across all age groups are afraid they will need to postpone their retirement because of financial responsibility for their family.
Perhaps the biggest challenge to plugging the financial gap is how people intend to address the shortfall. While an average of 75% of respondents say they will save as much money as possible, only 28% plan to invest in different financial products.
Financial solutions for fundamental problems
By contrast, Chiu believes one of the best ways to create a better safety net for most people in Asia is through investments that offer the potential generate a steady stream of income, even in retirement.
Some pension scheme providers offer income funds that regularly distribute dividends, allowing investors to receive an income every month while remaining invested in dividend-paying funds, said Chiu. “There are also retail funds offering monthly distributions, where investors can gradually invest in suitable income funds before retirement based on their individual needs and risk tolerance.”
In Hong Kong, for example, research from Manulife Investment Management’s Diverse Asia retirement series, proposes a repositioning of financial strategies to an income-oriented approach to cater to personal and family-related long-term financial needs.
“Hongkongers’ commitment to family care is admirable, but it’s crucial for individuals to prioritise their own financial well-being as well,” said Chiu, pointing to Hongkongers’ preference for cash dominating investment portfolios, especially among singles.
Starting new conversations
At the same time, the importance of a human element to help people fully understand and communicate their plans to loved ones cannot be overlooked. “Our research suggests there is a desire from Hongkongers to engage with professional financial advisors to help them strategize and initiate open conversations with their families about retirement, and help them make more informed decisions about long-term investments,” explained Chiu.
This would also help educate the market about some of the pitfalls of the cash-heavy strategies that are popular in Hong Kong.
Falling interest rates, among other drivers, demand that individuals review and reposition their portfolios to maintain the same level of income. “From a demographic perspective, we see that people with kids have more diversified investments, with less reliance on cash and greater focus on other asset classes. This could be a good reference point for others, as having a stable income also means longevity of income for their other needs,” added Chiu.
The key, believes Manulife Investment Management, is to allow for the unwavering family commitment typical in Hong Kong but also highlight the positive role of investment support to help balance family care and individual well-being.
This calls for a three-pronged approach: firstly, engaging professional advisors to help start conversations with the family; secondly, adapting the strategy around retirement planning, by making contributions earlier, and thirdly, shifting a portion of cash holdings to more effective investments that can generate reliable income flows.
Click here to read Manulife’s Financial Resilience and Longevity Report and Diverse Asia 2024
