When Is The Right Time To Save For Retirement?

Start Planning Now: Tips for Saving Early for Retirement in Hong Kong

A good question: when should you save for retirement?

The truth is, this is one of the financial tasks that you need to start working on immediately. You see, when you retire from work, the regular income that supported your lifestyle will stop. How will you finance your basic needs? How will you pay for your food, shelter, clothing, and the various medications that seniors usually require?

This the main reason why you need to save for retirement. Unless you want to keep on working until your drop, this is something that you need to work on as soon as possible.

Why do you need to save for retirement as early as possible

According to an article published in the South China Morning Post a lot of locals fear that they will not have sufficient funds for retirement. This is surprising because the article revealed that Hongkongers save the biggest share of their salary for retirement.

This is according to a study done in 15 countries. Apparently, the average worker in Hong Kong save 31% of their salary for their twilight years. Despite this effort, a lot of people still think that it will not be enough to retire on.

This fear has something to do with the fact that Hong Kong is one of the most expensive cities to live in. Although the government prioritizes the elderly when it comes to public housing, you will still need a huge amount of money to retire on.

According to the Statistics office of the government, the average household spends HK$27,627 a month. Of course, this is based on a family with a couple and kids. When you retire, you can assume a smaller monthly budget since you will enjoy senior discounts on practically all purchases. But even then, it will probably cost you HK$15,000 a month to live comfortably.

Since Hongkongers are expected to live long, thanks to the effective public healthcare system, you can assume that you will live around 20 years after you retire. If you decide to retire when you are 60, that means you need to save at least HK$3.6 million. This does not even take into consideration the inflation rate – so expect that the amount will be higher.

Using a retirement calculator from the HSBC.com, we have calculated your monthly contributions if you start at different ages.

Let us assume that you will need HK$15,000 a month when you retire and your savings will get an investment rate of 4%. Here are the monthly contributions that you will need to meet your retirement target.

• HK$11,381: If you start in your 20s, you need to put aside this amount each month until you reach the age of 60.
• HK$14,348: If you start in your 30s, you need to put aside this amount each month until you reach the age of 60.
• HK$20,109: If you start in your 40s, you need to put aside this amount each month until you reach the age of 60.
• HK$37,111: If you start in your 50s, you need to put aside this amount each month until you reach the age of 60.

As you can see, the later you start, the higher the monthly contributions will be. This can become a burden and you might feel stressed leading up to your retirement. To avoid this, you just have to start early and save for retirement as soon as you can.

Tips to help you plan for retirement effectively

Here are a couple of tips that will help you meet your retirement saving goals.

• Know how much you will need to retire on. Think about the type of lifestyle that you want to lead. Be realistic and practical. Do not aim too high when it comes to your retirement target. You do not want to pressure your present self just because you have high hopes for your future retirement. Knowing how much you need to retire on will give you the target amount you need to save up for.
• Treat it like a bill. When you get a bill, you have no choice but to pay it off – in full. When it comes to your retirement savings, the same treatment should be given. If you commit saving HK$5,000 a month, stick to that amount. Only a life or death situation should make you do otherwise.
• Maximize your MPF contributions. The Mandatory Provident Fund is mandatory in Hong Kong. This is where you will probably get the bulk of your retirement money. This money is usually invested so you can expect the compound interest to work in your favour to help build your retirement money.
• Save any windfall money. If you get a commission, a bonus or an unexpected financial gift, use a portion of it and save for retirement. Do not splurge the money on things that are not important. While you can reward yourself, do not forget that your future self also deserves to be rewarded through your retirement savings.
• Constantly check your retirement savings. Do not be complacent even if you have never missed a contribution. Always check your investment so you are sure that your savings are right on track.

To save for retirement at an early age is the best gift that you can give your future self. Do not disappoint yourself and make your senior self-suffer because you did not plan for retirement.