1.16 million to 2.37 million: in 20 years, one in three Hongkongers will be elderly

The baby-boom generation is entering retirement, and population ageing has become a global trend — with Hong Kong currently enjoying the world’s longest life expectancy. According to the Census and Statistics Department’s 2016 mid-term population count, the population aged 65 and above will more than double in the next 20 years:

The share will stay at that elevated level for at least 30 years. In other words, in two decades, one in three Hongkongers will be elderly. The silver generation’s needs are a challenge the whole society must face.

The confidence ledger: fewer than 40% expect an affluent retirement

A survey of more than 1,000 Hongkongers showed confidence in retirement life slipping:

Most respondents felt an ideal retirement was out of reach. The message is clear: only those who recognise the importance of retirement reserves early — and start saving and investing more, sooner — can enjoy better golden years.

The return ledger: from near double digits to the low-return era

Since the 2008 financial crisis, central banks have stimulated economies with quantitative easing, zero and even negative interest rates, dragging steady pension investment returns down from near double digits in the 1990s. The Bank of Japan’s negative-rate policy left its pension investments with just a −3.8 per cent return in 2015.

Low rates and low returns will keep pressing retirees’ living standards down. In an era when returns are hard to hope for, cutting the cost of managing retirement money is the only and fastest way to improve performance — and governments and regulators worldwide are pressing pensions to lower fees as globalisation and transparency advance.

The Hong Kong ledger: a half-century late start, fees catching up

Hong Kong’s MPF started far later than its peers:

Starting nearly half a century late, the compounding gap in returns is enormous. Worse, of the MPF’s 17 years of existence, nine were weighed down by the financial crisis — on top of the 2000 tech-bubble burst and 2003 SARS.

The MPFA and the government are working to catch up, with fees as the main battleground:

Another key measure is the Default Investment Strategy, effective 1 April 2017: simple, easy to understand and low-cost, designed for investors who lack expertise or time. The author also noted, however, that during 2017’s global bull market the “lazy fund” was dragged down by its bond allocation — and with equities expected to keep beating bonds, investors might consider shifting into slightly more aggressive fund categories. (The author’s view, January 2018.)

The longevity ledger: retiring at 65 leaves 10–20+ years to fund

Hong Kong life expectancy stands at about 87 for women and 81 for men. Retiring at 65 means roughly 10-plus, 20-plus, or even more years of retirement to finance.

Retirement spending is not a straight line: the early years are the most colourful — travel, hobbies, higher spending; as age advances and health issues appear, entertainment spending falls while healthcare costs rise. Daily expenses plus growing medical bills: both ledgers need advance planning.

This week’s action list

1. Start early, don’t rely on MPF alone: add other savings and investments for an extra layer of golden-years security
2. Review your fees: in a low-return era, fees are the one fully controllable variable
3. Match aggressiveness to life stage: an over-conservative allocation drags returns even in bull markets — review regularly, not once and forever
4. Reserve for medical costs: health is the biggest variable in late retirement

The ageing numbers wait for no one: 1.16 million to 2.37 million takes only 20 years. Preparing early starts now.