Have you prepared for your retirement need?

In modern world, technology gives us a lot of convinience, people live much longer than they usually did before. This should be great that we can enjoy our lives longer but this would also mean that we need to spend more in order to sustain our unexpected lengthy retirement years. Research shows that our average life has become much longer than before. Those extend life means that our savings for retirement would be greater. In our working life, we are now facing the challenge - we need to use the same time to save much more capital to fulfill what we need after retirement.

 

Mandatory Provident Fund (MPF) gives us basic retirement protection, but it may not be able to support our retirement needs. You will find the required reserves for your retirement is far from what you think if you take inflation and your expected standard of living into consideration.

Assume retirement at age 60, in order to maintain an expected monthly living expenses of HK$10,000 at present value for 20 years of retirement, the total amount required for retirement is:

 

Current Age	Total amount required for retirement (HK$)
35	$5,254,103
40	$4,260,455
45	$3,454,724
50	$2,801,372
55	$2,271,580

Assumption: Inflation rate1: 4.2% p.a.; Return on savings: 7% p.a. (2.8% higher than inflation).
Source of information: Census and Statistics Department, Hong Kong SAR. The figures reflect the average annual change of the Composite Consumer Price Index from 1987 to 2006.

 

The sooner you plan the more you can relax

Let's assume that you plan to amass an extra HK$2 million for retirement when you reach the age 60. Based on a rate of return of 7% p.a., the monthly savings required depending on your age is:

 

Age	20	25	30	35	40	45	50	55
No. of Years to Reach Retirement	40	35	30	25	20	15	10	5
Monthly Savings Required (HK$) (assuming 7%p.a. return on savings)	$758	$1,104	$1,630	$2,455	$3,817	$6,273	$11,488	$27,774
Total Amount Invested (HK$)	$363,840	$463,680	$586,800	$736,500	$916,080	$1,129,140	$1,378,560	$1,666,440

 

Time is money. The sooner you start saving, the lesser you pay.

 

What you should do

The sooner a savings plan commences, the lesser the amount that needs to be invested. So start your plan right now even a few dollars per month. Regular savings tells us a few dollars will grow over time because of the power of compounding - Snowball effect. The longer the time, the larger the effect is. Also, using dollar-cost averaging (have a chance to benefit from a lower average cost and no need to time the market's ups and downs by investing regularly with fixed amount) can accumulate your wealth more easily. Still waitinh? Start your action right now.