The Future of Retirement A balancing act Singapore Report
The research The Future of Retirement is a world-leading independent research study into global retirement trends, commissioned by HSBC. The global report, A balancing act, is the tenth in the series and represents the views of more than 16,000 people in 15 countries. The findings in this Singapore report are based on a nationally representative survey of 1,000 people of working age (25 and over) and in retirement, and was conducted online by Ipsos MORI in August and September 2014. All references to retirees refer to people who are semi or fully retired. All references to income refer to gross annual household income.
Key findings Mortgage repayments are preventing working age people from adequately preparing for a comfortable retirement. Over two in five (41%) who are not adequately prepared see repaying their mortgage as a barrier. Over a quarter (26%) say that paying off other debts is stopping them preparing adequately. With the benefit of hindsight, over two in five (41%) retirees say that they would have saved more and 35% would have started saving at an earlier age to improve their standard of living in retirement. A third (33%) of pre-retirees are not currently, or do not intend to start, saving specifically for retirement. Even more concerning, almost a third (30%) of those nearing retirement (aged 45 and over) are not saving or do not intend to save for retirement. Almost three in five (58%) working age people say that their income is not keeping pace with the cost of living. Despite recent signs of recovery, people s retirement saving has been, and continues to be, significantly impacted by the global economic downturn. Many working age people have stopped or reduced saving for retirement, whether through investments (27%) employer pension schemes (25%) or cash deposits (24%). 3
A life less comfortable Many retirees have an annual household income well below what they deem necessary for a comfortable retirement. According to retirees, the minimum household income for a comfortable retirement is SGD54,000 a year. Yet over two in five retirees (43%) live on a household income of less than SGD48,000 a year. What s more, the majority of working age people have more fundamental concerns about funding their retirement. Over four in five (81%) are afraid of running out of money and 78% worry about having enough money to live on day-to-day. All of this suggests that preretirees fear that life after work may be less comfortable than they might have hoped. A third (33%) believe their standard of living in retirement will be worse than their standard of living today. Almost six in ten (58%) expect to have to cut down on everyday spending, nearly half (48%) say they will have to eat out less and 43% will move to a smaller home, once they retire. The outlook for the next generation is even less optimistic: 15% of working age people believe they will never be able to fully retire. More than half (53%) say they cannot afford it and 39% believe they will not be able to maintain a comfortable lifestyle. Maintaining a comfortable standard of living during retirement is a real concern for many. Almost two in five (39%) pre-retirees are not confident in their ability to maintain a comfortable living standard once they have stopped working. These retirement lifestyle concerns are an issue across all income levels: even amongst preretirees with a household annual income of more than SGD100,000 a year, almost a third (31%) are not confident that they will be able to maintain a comfortable standard of living through their retirement years. Many pre-retirees are not confident in their ability to maintain a comfortable living standard in retirement 39% of pre-retirees are not confident Q. How confident are you that you will be able to maintain a comfortable standard of living during your retirement years? A. Not very confident or not at all confident. (Base: Pre-retirees) 4
40% of pre-retirees say they have not adequately prepared for a comfortable retirement Ready or not Working age people are worried about their financial preparations for retirement. Two in five (40%) think their preparations are inadequate for a comfortable retirement. There is concern from retirees too, with 44% saying their preparations were insufficient. Some of the main reasons why people are not preparing adequately to maintain a comfortable standard of living in retirement are because they: Cannot afford it: More than a third (36%) of pre-retirees say they cannot afford to prepare adequately. Have more immediate financial commitments: Over two in five (41%) pre-retirees say they are paying off their mortgage, while over a quarter (26%) say they are paying off other debts. Did not start saving early enough: Around two in five pre-retirees (42%) and a third of retirees (33%) admit they did not start saving early enough. Were not aware of how much to save: Almost two in five (39%) retirees say they did not realise how much they needed to save. 5
Juggling priorities For the majority (82%) of working age people, saving for retirement is not their main priority. Other priorities include saving for children s education (19%), saving for a rainy day (17%) and paying off other debts (13%). Even with the best intentions, major life events have affected over four in five (81%) preretirees retirement saving. While some of these events can be planned for, such as buying a home or paying a mortgage (36%) or starting a family (17%), unexpected events can also have a significant impact. Unforeseen life events like illness, divorce or losing a spouse can have a significant impact on a person s financial situation, before and after retirement. Almost a quarter (23%) of working age people faced an unexpected illness that stopped them or their spouse from working, with a knock-on effect on their retirement savings. The global economic downturn has also had a far-reaching impact. Around a quarter (27%) of preretirees say it had a direct and significant impact on their ability to save for retirement. It is also likely to have had an indirect effect on pre-retirees economic wellbeing, with 33% saying that losing their job, seeing a significant drop in their earnings (23%) or getting into debt/having severe financial difficulty (19%) affected their ability to save for retirement. 6
Life events significantly impact pre-retirees ability to save for retirement Buying a home/paying a mortgage 36% Becoming unemployed 33% Global economic downturn 27% Paying for children s education Illness or accident preventing me/my spouse working Significant drop in earnings/pay cut Getting into debt/severe financial difficulty 19% 23% 23% 24% Starting a family 17% Having to stop work to look after someone Having to fund/pay for a dependant 14% 14% Getting married/civil partnership Paying for my own education 10% 10% Q. Some people experience life events which impact significantly on their ability to continue saving for their retirement. Which, if any, of the following life events have ever impacted significantly on your own ability to save for retirement? Answers shown for responses of 10% or more. (Base: Pre-retirees) 81% of working age people have had their ability to continue saving for retirement impacted by a significant life event 7
Looking back, starting sooner With the benefit of hindsight, many retirees would have done things differently before they retired, to improve their standard of living in retirement. For example, over two in five (41%) retirees say they would have saved more, and 35% would have started saving at an earlier age. More than two in five (41%) retirees say that retirement planning should start at the latest by the age of 30 if you want to maintain a similar standard of living after retirement. More than a third (36%) of pre-retirees agree that you need to start planning at this age. Moreover, a third (33%) of preretirees are either not currently saving for their retirement or do not intend to start. Even among pre-retirees nearer to retirement - those aged 45 and over - almost a third (30%) are not saving or do not intend to start saving specifically for retirement. Over two fifths of retirees believe people should start retirement planning by age 30 41% 36% Aged 30 or younger 31% Aged 31-40 32% 15% Aged 41-65 21% 13% 11% No particular age/don t know Retirees Pre-retirees Q. What would you say is the latest age people can start planning for their retirement (assuming retirement at 65), and still expect to maintain in their retirement a standard of living similar to the one that they were used to when working? (Base: All) 8
33% of pre-retirees are not saving for retirement 9
The best laid plans - intentions versus reality Over their working life, preretirees on average plan to save 29% of their income towards retirement savings and investments (excluding pensions). In reality however, today s retirees actually saved 24% of their income over the course of their working lives. Wishful thinking versus stark reality? Pre-retirees believe they will save just under a third of their income towards their retirement savings and investments. The stark reality for today s retirees was lower. Share of income saved towards retirement savings and investments (excluding pensions) There is a noticeable gap between pre-retirees intentions towards saving for their retirement and the reality as experienced by current retirees. 24% 29% 31% 25% 30% 30% 28% 26% 26% Working age people plan to save a constant 26-31% of their income towards their retirement savings and investments (excluding pensions) throughout their working life. Again, the current reality is different. Retirees saved a considerably lower share of their income (18%) when they were younger (between age 18 and 29), and only later in life increased the share of their income closer to their intended level, missing out on the full benefits of compound growth. All ages 18% Aged 18-29 Aged 30-44 Aged 45-59 Aged 60+ Working age people do not have enough savings and investments to last them through their retirement. On average, preretirees expect that their retirement savings and investments (excluding pensions) will run out 13 years into their retirement. Retirees Pre-retirees Q. Please type in the percentage of your annual income you saved for your retirement when you were in these age groups (Base: Retirees) Q. Please type in the percentage of your annual income you plan to save in the future for your retirement when you are in these age groups (Base: Pre-retirees) 10
On average, pre-retirees expect their savings and investments will last for just 13 years in retirement With retirees on average fully retiring at age 60 and a typical life expectancy in Singapore of 83 1 years, pre-retirees face a 10 year gap when they will be solely reliant on any state, employer or personal pension provisions they may have. 1 Current life expectancy, World Health Organisation Among pre-retirees, women in particular do not have enough savings and investments to last them through their retirement. Women expect their retirement savings and investments will last only 12 years, but with an average retirement period of 23 years, this leaves 11 years when women will be reliant solely on any pension provisions they may have. Men too are not saving enough and will have enough retirement savings and investments for only 13 years of their 18 year average retirement period. Future retirees face a 10 year retirement funding gap Years of more 13 10 retirement funds Years of reduced retirement funds 23 Years of retirement Q. For how long, if at all, do you expect your retirement savings and investments (excluding pensions) to last in retirement? (Base: Pre-retirees) 11
Confidence returns for some, but retirement savings still affected As the country recovers from the global economic downturn, financial confidence for some is increasing, with 37% of preretirees feeling more confident about their future financial prospects than a year ago. However, almost three in five (58%) working age people say that their income is not keeping pace with the cost of living. This may explain why a third (33%) have seen their ability to save reduce, and just 5% say their ability to save has increased a lot compared with a year ago. The economic downturn continues to negatively impact how people save for their retirement. Compared to before the recent global downturn, many working age people have either stopped or reduced their retirement saving, whether through investments (27%) employer pension schemes (25%) cash deposits (24%), or annuities (22%). Other savings are impacted. More than a fifth (22%) of pre-retirees have either stopped or reduced their savings for their children s education. There is less money for luxuries, too. Almost two in five (37%) who previously saved for a new car and almost a third (32%) of pre-retirees who previously saved for a holiday have either reduced these savings or stopped altogether. When it comes to good ways to generate income for retirement, over two thirds (69%) of retirees have confidence in second/buy-to -let properties, followed by cash deposits (67%) insurance policies (64%) and annuities (56%). Similarly, working age people also have the most confidence in cash deposits (69%), property (63%) and insurance policies (65%). They are also confident that investments (52%), personal pension schemes (46%) and annuities (46%) are good ways to generate income for retirement. 12
Retirees and pre-retirees have most confidence in property, cash deposits and insurance policies as good ways to generate income for retirement Property (second home/buy-to-let) Cash deposits 63% 67% 69% 69% Insurance 64% 65% Annuities Personal pension scheme 46% 46% 48% 56% Employer pension scheme 37% 47% Investments 47% 52% Retirees Pre-retirees Q. How confident are you that these are good ways to generate income for your retirement? A. Very or fairly confident. (Base: All) 37% of pre-retirees feel more confident about their future financial prospects than a year ago 13
Practical steps towards a better retirement Here are some important insights and practical actions drawn from the research findings, which may help today s retirement savers plan a better financial future for themselves. 1 retirement Start saving early More than a third (35%) of retirees say that starting to save earlier would have improved their standard of living in retirement. Not starting to save early enough was amongst the top reasons for pre-retirees (42%) and retirees (33%) feeling insufficiently prepared for a comfortable retirement. Retirement can seem a long way off when you are young. Nevertheless, it is crucial to start making plans as early as you can. 2 Know how much you need On average, people will need to fund over 20 years in retirement. Almost two in five (39%) retirees say they did not prepare adequately for a comfortable retirement because they did not realise how much they needed to save for their retirement. Start thinking about the kind of lifestyle you want when you retire and how much you will need to fund it. 3 Refill the pot Around a quarter (27%) of working age people say the global economic downturn had a direct and significant impact on their ability to save for retirement. It may also have had indirect effects, with 33% saying that losing their job, seeing a significant drop in their earnings (23%) and getting into debt/having severe financial difficulty (19%) affected their retirement saving. It is easy for retirement savings plans to suffer when times are hard. With the worst of the global economic downturn behind us, start looking for advice on how to replenish any depleted funds in your retirement pot. 4 do Expect the unexpected Almost a quarter (23%) of working age people say that illness or an accident has prevented them or their spouse from working and this significantly affected their ability to continue to save for retirement. Unforeseen life events can damage your retirement savings plans. No one can see into the future, but consider what could happen and how this will impact your financial planning. 14
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HSBC Holdings plc 2015 All rights reserved. Excerpts from this report may be used or quoted, provided they are accompanied by the following attribution: Reproduced with permission from The Future of Retirement, published in 2015 by HSBC Holdings plc. HSBC is a trademark of HSBC Holdings plc and all rights in and to HSBC vest in HSBC Holdings plc. Other than as provided above you may not use or reproduce the HSBC trademark, logo or brand name. Published by HSBC Holdings plc, London HSBC Holdings plc 8 Canada Square, London E14 5HQ 16