Hong Kong workers face a HK$2 million retirement gap as life expectancy stretches, HKIFA survey finds

The typical Hong Kong employee will fall short of the savings needed to sustain their current living standard after retirement by nearly HK$2 million, according to a survey released this month by the Hong Kong Investment Funds Association (HKIFA). With the city on track to have one of the world’s longest-living populations, the gap is set to widen rather than close.

The numbers

The HKIFA survey, conducted in the third quarter of 2017, puts the retirement arithmetic in stark terms:

Three in four employees, in other words, expect to run out of adequate funds — and more than half of those say they plan to take less investment risk, a move that will likely shrink their returns further.

Why the gap keeps widening

The shortfall is not mainly about stinginess. It is about longevity. Hong Kong has no official retirement age, but many private companies ask staff to leave at 60. Government projections cited in the survey show just how long the unfunded years can stretch:

A woman retiring at 60 today faces more than a quarter-century with no salary. By 2066, it will be more than 33 years — longer than many people’s entire working lives.

The MPF blind spot

Despite knowing they cannot rely on the Mandatory Provident Fund alone, most employees have done little about it. More than a third of respondents could not say what share of their retirement savings the MPF — which covers 2.8 million employees and self-employed people — will provide. On average, employees expect MPF to account for just 38 per cent of their retirement pool.

And only 30 per cent of respondents have earmarked a fixed portion of their income for retirement savings outside the MPF.

What the maths demands

Financial-planning convention holds that maintaining one’s standard of living after retirement requires an income replacement ratio of about 70 per cent of pre-retirement income in the final working year. On that basis, funding a 20-year retirement means saving roughly 23.6 per cent of earnings every year of a working life.

Against the 10 per cent mandatory MPF contribution, that leaves another 13.6 per cent of income that employees should be setting aside for retirement purposes — on top of the MPF.

What to do about it

• Name a number. Work out what your target retirement pot is — the HKIFA figure of HK$3.1 million at 65 is a city-wide average, not a personal plan.
• Find the 13.6 per cent. The arithmetic says MPF alone will not close the gap; earmark a fixed slice of income outside the MPF and automate it.
• Do not retreat from risk too early. Cutting investment risk feels prudent, but over a multi-decade horizon it locks in lower returns. Match risk to your time horizon, not your anxiety.
• Check what the MPF actually covers. If you cannot state the MPF’s share of your own retirement plan, that is the first gap to close.