Post-80s retirement in three steps: let target-date “lazy” funds do the steering

What are MPF voluntary contributions?

MPF voluntary contributions are extra contributions employees make to their MPF on top of mandatory contributions — and compounding can push retirement savings far higher. Take a 22-year-old woman earning HK$11,000 a month: mandatory contributions of HK$1,100 a month, assuming the Hang Seng Index’s average annual gain of about 5% over the past 11-plus years and 1% annual inflation, grow to accrued benefits of just over HK$1.5 million by age 65. But Fidelity’s retirement index suggests monthly retirement income should reach 67% of pre-retirement income for a comfortable retirement — if she earns HK$30,000 before retiring, she needs HK$3.81 million; adding HK$1,900 a month in voluntary contributions takes her past HK$4 million.

Why should the post-80s act early when retirement is decades away?

Fidelity’s “MPF Insights” survey found over half of post-80s workers count MPF as their main retirement reserve and believe it can cover more than 50% of post-retirement living costs — yet most never review their MPF returns annually. With about 40 years to age 65, they expect MPF to fund most or all of retirement; the example above shows mandatory contributions alone won’t get them there — they must be more proactive.

Three steps to pave the retirement road

1. Raise MPF contributions — make the impossible possible: compounding is powerful; an extra HK$1,900 a month can grow retirement savings from just over HK$1.5 million to over HK$4 million. The survey found post-80s spend 26% of monthly income (HK$2,860 in the example) on items they can’t clearly account for; budgeting properly and redirecting that money into voluntary contributions makes funding retirement through MPF far from a “mission impossible”.
2. Match strategy to yourself, manage actively: about 40% of post-80s respondents were dissatisfied with their MPF returns. MPFA statistics show annualised returns since MPF’s inception as follows — the conservative fund barely offsets ~1% annual inflation:

1. Target-date funds — the “lazy” funds with a professional at the wheel: 69% of dissatisfied young respondents would rather put money in individual stocks than MPF funds — yet their stock-picking often loses money. Without the time or knowledge to allocate assets, seek professional advice or choose target-date funds, nicknamed “lazy” funds, which set risk levels by retirement age and flexibly adjust the equity-bond mix.

Young people have youth on their side and a long investment horizon; used well, MPF can secure ample retirement savings. For voluntary-contribution arrangements, see the voluntary contributions guide, or compare MPF funds to pick a suitable fund.

— Cheng Kim-wai, Managing Director, Fidelity Hong Kong