The Rise of Flexible Retirement: Two Steps to Unpack Personal Planning

Hong Kong's population is trending towards becoming a super-aged society. According to projections by the Census and Statistics Department, by 2043, one in every three residents in Hong Kong will be aged 65 or older. This surpasses the World Health Organization's definition of a "super-aged society" where over 20% of the population is aged 65 and above.

This significant demographic shift is challenging the traditional notion of "retirement at 65." In recent years, concepts like "micro-retirement" and "unretirement" have emerged, reflecting how Hong Kong residents are envisioning the latter half of their lives with more autonomy and creativity. However, these changes also introduce new financial planning challenges for individuals and families.

Retirement planning is more than just saving money

Traditionally, retirement planning was seen as "saving more money" to enjoy later years at a certain age. However, in a high cost living environment like Hong Kong, retirement is not just about "saving enough money." It's about effectively utilizing accumulated assets to flexibly convert them into sufficient and stable retirement income, thereby achieving one’s envisioned ideal life.

Though retirement planning may seem complex and daunting, we believe that breaking it down into two main stages is a practical starting point.

First Stage: Accumulation Phase—Steady Saving and Flexible Growth

The accumulation phase is the stage most people are familiar with. During this time, it's crucial to start saving early. Utilize common investment tools and retirement plans available in the market, such as Mandatory Provident Fund (MPF), voluntary contributions, stocks, bonds, and funds to diversify investments. This can leverage the effects of compound interest to achieve greater results with less effort.

We recommend saving at least 15% of your monthly salary, gradually increasing the savings ratio as your income grows. Regularly review and adjust your asset allocation according to your personal risk tolerance and respond flexibly to market changes to build a solid foundation for your future retirement life.

Second Stage: Withdrawal Phase—Creating a Personalized Retirement Income Plan

Entering the second half of life, the biggest challenge for those nearing retirement is how to convert years of savings and investments into a stable cash flow that can sustain their desired quality of life. Consider the following five key questions to clarify personal income needs after retirement:

1. How much cash is needed monthly?
   Do you want to maintain your current lifestyle, achieve your dream of traveling the world, upgrade your home, or relocate overseas? Your ideal lifestyle directly determines the monthly retirement income you need.
   
   
2. How long must your savings support your retirement life?
   Are you planning to retire early? What is your family's health history? With the increasing life expectancy in Hong Kong, retirement savings may need to support you for the next 30 to 40 years.
   
   
3. Can you accept market volatility?
   Do you have fixed expenses such as mortgages or family responsibilities? Is your investment portfolio robust enough to withstand market fluctuations? Can you handle the ups and downs of investment income?
   
   
4. What level of liquidity do you need?
   Are you planning to start a business, support your children, or cover unexpected expenses after retirement? If so, you must reserve a certain amount of liquid assets for flexible adjustments.
   
   
5. Do you have estate or charitable plans?
   Do you wish to leave assets for your family, support charitable causes, or enjoy life to the fullest? These goals will influence the final distribution of your assets and your investment strategy.

Retirement doesn't equate to being worry-free; planning must be proactive and diversified.

In reality, there is no "one-size-fits-all" solution that can perfectly address all retirement income needs. Comprehensive planning should incorporate personal goals, quality of life, and financial strategies.

The returns, risks, and liquidity of different assets and products vary. Each individual should flexibly and diversely allocate assets based on their risk tolerance, goals, and timeline to seek stable cash flow and long-term capital appreciation.