The Tanner Hill - Smart Decisions

As the population ages and many in Hong Kong nearing their retirement age, retirement planning naturally tops the priority list. Inadequate planning could result in dire consequences such as lapsing back to your life as a workhorse and an undesirable standard of living. So be smart and face your retirement full frontal – one of the ways to ensure worry-free retirement is to assess and allocate your assets well ahead of your actual retirement.

Retirement income is the paramount issue to ponder. The truth is, people tend to underestimate their expenses in retirement years because they haven't taken inflation's impact on purchasing power into account. If, for instance, the inflation rate is 5% per year, the purchasing power of HK$100 would depreciate to HK$61 in 10 years' time, and a meagre HK$37 in 20 years!

Take this scenario for example: you plan to live your 30 years' of retirement life with HK$12,000,000, which means spending an average HK$400,000 per year (HK $33,000 per month). If it's saved in a bank with near-zero interest rate, and inflation rate is 5% per year (you will need to increase your expenses by 5% every year to maintain the standard of living previously enjoyed), the entire sum would exhaust in just 18 years' time!

By the time you notice the dwindling of your wealth in your retirement years, naturally, you'd refrain from spending. Such is a sign of your living standard taking a nosedive, and precisely why it's wise to plan your retirement ahead and devise your investment portfolio to ensure a stable and robust finance for your golden years.

Another common cause of budget underestimation is the wrong choice of retirement investment tools. Some people are inclined to believe dividends in in blue chip stocks as a reliable source of retirement income, often overlooking the fact that even the prices of blue chips can experience palpable fluctuation and possible drastic changes in dividends. In addition, the volatilities and short cycles of the current stock markets are obvious indications that investment could suffer negative returns with much lower-than-expected dividend payments, especially if you enter the market at high levels. Stock dividends simply cannot be relied upon as a stable source of income.

Find out how you can best plan for your retirement finance in my next Retirement Planning section.

Author:
Steve Lo
Certified Financial PlannerCM
Senior Vice President of ING Financial Planning

Steve Lo has more than 18 years of experience as an investment consultant and financial planning advisor, and his advice on investment and financial management has been shared via numerous media interviews, as well as investment symposiums where he was speaker. Steve has penned over 200 articles on personal investment and financial planning for Hong Kong Economic Journal between 1998 and 2008. Some of the articles were edited into two books ("Mutual Fund Investment: A Practitioner's Perspective" and "Financial Planning: A Practitioner's Perspective") offering invaluable advice on fund investment and financial planning.

Steve has also served as instructor for the various Continuing Professional Development courses of the Hong Kong Securities Institute and Institute for Financial Planners of Hong Kong between 2001 and 2010. In addition, Steve sat as one of the judges for the SCMP/IFPHK Financial Planner Awards and Benchmark Wealth Management Awards between 2005 and 2012.

Continuous reading:
Retirement Planning (Part 2)