- Category: Investment and Wealth
- Friday, 13 February 2015 21:10
The average life expectancy in Hong Kong is among the highest in the world (80.9 years for males and 86.6 years for females in 2013). Living longer implies that we have to save up more for our retirement. Saving is a must, but judicious investing of savings will give us more bang for our buck. We need that extra hoard because inflation is eroding the value of our retirement nest egg.
We need our money working hard for us just to stay abreast of the rising price level. Roughly speaking, if the price level goes up by 4% per year, the value of money will be halved in about 18 years. So, if you save up $5 million in cash when you retire at 60 years old, it will only be worth about $2.5 million in purchasing power when you are 78. Saving up to $5 million for retirement is difficult enough for someone with moderate income, keeping its value afterward is equally challenging.
Since investing your accumulated savings for retirement is a long-term effort and has a significant strategic bearing on the future welfare of the second half of your life, it really deserves careful consideration. It is better put a plan into action rather than just thinking about it now and then only to put it aside until it is too late to change the course. Everyone has different ideas about savings. It all boils down to making regular savings and judicious investment. It requires a well-thought-out plan and the discipline for consistent implementation. Further, the plan should be easy to understand and carry out.
A simple and effective way to accumulate your retirement nest egg is to make voluntary or special voluntary contributions to a well-chosen MPF scheme. Most employees have an MPF or ORSO scheme set up with regular contributions made by the employee and employer. But just relying on these savings is definitely not enough for retirement needs. Although some people lament the meager returns on their MPF contributions, according to MPF statistics, the returns beat the HK inflation rate! For the period from 1 December 2000 to 30 June 2014, the net-of-fees-and-charges annualised rate of returns on the most commonly chosen mixed assets fund class was 4.6%. During the same period, the annualised composite change in the Consumer Price Index was 1.6%. If you had done your homework well and picked an MPF scheme which achieved a better-than-average performance, the winning margin would be even more attractive. Although funds in an MPF scheme incur fees, unlike the investment funds sold at the retail level, it doesn’t require any initial subscription fee (front load). Investing through MPF voluntary or special voluntary contributions is cost effective and requires little effort to manage once you have set up the account and auto-pay authorisation. It is definitely a plan which deserves serious consideration by the financial novices who want to accumulate a decent retirement nest egg!
(Source of photos: Wikimedia Commons)