According to the Retirement Money Matters Study conducted by the Investor and Financial Education Council, around 80% of the surveyed working adults indicated that they would start saving for retirement from 40 years old onwards. The Study interviewed around 800 working adults and 400 retirees in April this year.
Retirement may seem like a long time away for young adults who are preoccupied by other life pursuits, such as marriage or starting a family. As such, it is understandable that they would not think about retirement planning until later. However, it means that we have three to four decades to work towards our retirement life which could be as long as two to three decades. With the life expectancy of Hong Kong people averaging at above 80 years old, when you consider monthly living expenses, medical costs and inflation rates, proper retirement planning becomes all the more important.
If you only start retirement saving in your middle age, it may be more challenging to accumulate the desired amount given the shorter investment horizon. Among the surveyed retirees, 85% said they would have started saving for retirement earlier if they could start over again.
The best time to start saving for retirement
Return on investment depends on three factors: the principal, yield and investment horizon. The longer the investment horizon, the greater the compound interest effect. If you start investing HK$5,000 monthly at 40, assuming that the annual rate of return is 5%, at the age of 65, your savings will grow to HK$2.98 million. But if you start earlier, say when you are 30, the accumulated value will go up to as much as HK$5.68 million. In a nutshell, the earlier, the better.
Assumptions：
|
Start at 50 (Investment period: 15 years) |
Start at 40 (Investment period: 25 years) |
Start at 30 (Investment period: 35 years) |
|---|---|---|---|
| Total principal | HK$900,000 | HK$1,500,000 | HK$2,100,000 |
| Return | HK$440,000 | HK$1,480,000 | HK$3,580,000 |
| Total amount accumulated at 65* | HK$1,340,000 | HK$2,980,000 | HK$5,680,000 |
*Total savings at 65 represents a future value. Assume the annual inflation rate is 2%, the present values would be HK$0.99 million, HK$1.81 million and HK$2.82 million respectively.
Start your retirement saving NOW
While young adults work hard to achieve their life goals, it is always a good idea to start preparing for retirement with a feasible and regular saving plan, of which the amount can increase over time. It is important to start early to allow your wealth to grow using the power of compound interest. If you start saving for retirement at middle age, you will probably need much more monthly savings to achieve your retirement goal given the shorter time span. See below example:
Assumptions：
|
Start now (i.e. Age 30) |
Start 10 years later (i.e. Age 40) |
Start 20 years later (i.e. Age 50) |
|---|---|---|---|
| Amount you need to save/invest each month | HK$5,281 | HK$10,075 | HK$22,448 |
It is always better to start saving earlier, and the best time is, regardless of your age, now!
The above illustration is just an example. As we all have different needs for retirement, the optimal amount is also different for everyone. You can use the Chin family Retirement Planner to find out how much you need for retirement and work out your monthly saving amount!
