Pointers to planning ahead financially for your retirement

PUBLISHED : Sunday, 04 November, 2012, 12:00am
UPDATED : Sunday, 04 November, 2012, 9:52am

With three properties under his belt, Mak Hon-kai, 73, is enjoying a comfortable retirement.

The chairman of the Hong Kong Association of Senior Citizens, who came from humble origins, says his assets are the fruit of hard work.

"Both my late wife and I were very poor when we first started working as teachers," he says. "We were frugal people who saved most of our monthly salaries."

It is essential to save for retirement, Mak says, but investing in the property market helped him reap substantial gains.

His three properties - two in Ho Man Tin and one on Cheung Chau - are worth a total of HK$15 million.

Together with his helper, mother-in-law and son, Mak lives in his 904 sq ft flat in Yee On Court, Waterloo Road, which he bought for HK$3 million in 1994. It is now worth more than HK$7 million. He bought a 667 sq ft flat, also in Yee On Court, in 1978 for HK$180,000, and rents it to his third daughter. It is now worth more than HK$5 million.

"The monthly rent of over HK$10,000 from my daughter helps pay my living expenses," he says. "In 1992, I bought a flat at South Horizons in Ap Lei Chau for HK$1 million and sold it for HK$3 million in 2000. The profits I reaped from the transaction helped me pay the outstanding balance on my mortgages for the three properties [I now own]."

With a Chinese teacher's monthly salary of HK$30,000, Mak says, savings alone would not have been enough to pay for his children's education and his retirement expenses.

"My wife's salary was HK$20,000. Around 50 to 60 per cent of the household income was used to pay the education expenses of my four kids. Three of them were educated in Britain. I never expected my children to take financial care of me when they grew up. So property investment was a good way to counter inflation and accumulate profits to tide me over until I die."

Mak's prescience in retirement planning is uncommon among locals. A survey commissioned by Hang Seng Bank in 2008 showed that 50 per cent of locals had never seriously made financial plans for their retirement or taken any concrete action on it.

Another 18 per cent had seriously thought about it but never taken any action. More than 60 per cent expressed concerns about the high cost of living and not having adequate savings or income to maintain their future living expenses. The survey found that people started to plan for retirement at 47 years old, on average.

Professor Francis Lui Ting-ming, head of the department of economics at Hong Kong University of Science and Technology, says a retiree should have at least HK$3 million in the bank.

"That pays for medical and daily expenses but excludes housing," he says. "The amount of retirement money needed should be 300 times the amount of current monthly expenses. If you spend HK$10,000 a month now, you will need HK$3 million for retirement. If you are really worried about your health, you need a retirement fund that is 400 times the current amount of your expenses."

With medical advances and high living standards prolonging life expectancy, Lui says it's better to err on the side of caution and set aside a bigger retirement fund.

"You may be "unlucky" enough to live until you are 100 years old, which means you will be in retirement for 40 years," says Lui. "People see raising children as a form of retirement protection. Children might be able to take care of elderly parents for a couple of years. But it's impossible for them to do so for decades. So it's better for people to rely on themselves for retirement. In the past, people didn't need to think about retirement, as they died before reaching that age. Now, as people live longer, they should plan for retirement once they start working."

Luk Kim-ping, a specialist in the pension market and head of institutional business in Hong Kong with Fidelity Worldwide Investment, says mandatory provident funds, savings schemes and property investment are relatively risk-free ways to plan for retirement.

"The elderly can also consider reverse mortgage schemes," he says.

Under such a scheme, an elderly homeowner borrows money against the value of their home. The principal and interest are not repaid until the home is sold, usually when the borrower dies or voluntarily vacates the home. "The elderly borrower gets a lump sum, which can provide a regular stream of payments for monthly living expenses," Luk says.