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Retirement is not a blurred vision that will merely materialize when the time comes. Whether you are ten or thirty years away from retirement, check out these four things essential for a happy retirement.
1. A Home
This would best be a mortgage-free, fully paid up property in your name.
Yes, it could be quite a feat to achieve in an expensive city like Hong Kong. And that is precisely why it’s the first prerequisite for a stress-free retirement. With your own place, there is no need to worry about rising rent or problems with a contract renewal, which could be especially challenging for retired seniors financially and psychologically.
In case of a cash crunch in your retirement years, you can also use your property to arrange a reverse mortgage. Reverse mortgage means using one’s residential property as security for a loan, with which the borrower can stay in the property while receiving monthly payments. The government-owned Hong Kong Mortgage Association first introduced its Reverse Mortgage Program in 2011, following which many banks launched similar programs. Currently, the HKMA program is open to Hong Kong residents over the age of 55, with flexible withdrawal, payment and cancellation terms.
The buy-or-rent issue is indeed a subject of never-ending debate. In the context of retirement planning, it is straightforward – if you do not own property, the only other option would be to set aside sufficient funds for long-term renting.
2. Insurance coverage
Most people retire in their 60s. At this age, healthcare will become an increasingly important concern. With the acute shortage of public medical resources and the escalating cost of private medical services in Hong Kong, a critical illness could easily jeopardize a retiree’s financial situation. And this can only get worse with the city’s rapidly ageing population.
That’s why you must have sufficient medical insurance coverage to cope with such contingencies. Many people rely on their employer’s medical insurance, and have neglected to plan for their own coverage upon retirement. If this applies to you, make sure you start looking into this at least one to two years before your planned retirement. It takes time to research, obtain quotes and select an insurer. First-time customers might also be required to seek medical check-ups or go through other screening procedures before a policy can be arranged and activated. All these take time.
Of course, it is best to maintain a healthy mind and body at any age.
3. Retirement nest egg
This would be the reserve you draw upon to maintain your everyday living expenses. These days, jobs that provide good retirement pension are few and far between. Most people need to save enough to make up their own “pension fund” to support retirement living. MPF does provide a basic level of support, but for most people, it will not be enough1.
Start by estimating how much you will need to spend in your retirement years. This is a highly personal question and answers differ widely. In most cases, however, it would be a pragmatic compromise of what you want and what you can afford. Don’t forget to factor in inflation in your calculations. The amount you worked out would be your target retirement fund, to be achieved by financial planning, savings, and investment.
There are many ways to manage your retirement fund. For Fools who have been investing all their life, this would quite naturally be an asset portfolio that comprises of stocks, bonds, cash, mutual funds, ETFs, REITs, annuity, etc. The most important consideration for a retirement portfolio is risk. This absolutely doesn’t mean that you should go for zero risk – far from it, as a retirement portfolio does need to generate a return. It just means that you have to manage risk much more cautiously than a person in their 20s or 30s, and refrain from investing in high-risk financial instruments.
4. A post-retirement vocation
It could be a charity project, going back to school, starting a book club, or an investment group – anything that you genuinely enjoy doing. Consider it your second career, one that you pursue purely for the love of it. This is a great way to keep yourself engaged, connected and up-to-date – all essential for a healthy and fulfilled retirement. And who knows, it could well be the opening of an amazing second act!
Footnote 1: According to the MPFA September 2018 Report, the average balance of an MPF account is HK$197,000. Do note that some members own two accounts due to a job change or set up a personal account. There is a total of 9.5 million MPF accounts, among 4.3 million members.
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