Since 2005, HSBC has been looking in-depth at retirement, and how pre-retirees are able to save in today’s market. The bank’s research is based on a nationally representative survey of 1,001 people into understanding and supporting all retirement plans – including working age people (see Fig. 1), along with pre and current retirees. The independent research study is a driver for HSBC Fundo de Pensão in achieving its desired standard of living in retirement. Conducted in August and September last year, the study is the 10th in the series, revealing many findings that confirm some of the actions that have been taken by HSBC Fundo de Pensão to improve members’ wellbeing.
Many retirees feel that they have an annual household income well below what they deem necessary for a comfortable retirement. The outlook for the next generation is even less optimistic: 10 percent of working age people believe they will never be able to fully retire and more than 43 percent believe that they will not be able to maintain a comfortable lifestyle if they retire. A total of 29 percent say they will not be able to afford to do the things they want later in life.
Brazil’s age structure:
Life expectancy at birth:
Source: Index Mundi
Notes: 2014 figures
Maintaining a comfortable standard of living during retirement is a real concern for many. Almost 32 percent of pre-retirees are not confident in their ability to maintain a good living standard once they have stopped working. For those aged 45 and over this figure rises to 40 percent compared with over 26 percent of 25 to 44 year olds. These retirement lifestyle concerns are an issue across all income levels – even among pre-retirees with a household monthly income of more than $4,890 a month, as over 28 percent are not confident that they will be able to maintain a comfortable standard of living through their retirement years.
What’s more, the majority of those of working age have more fundamental concerns about funding their retirement. The majority at 83 percent worry about having enough money to live comfortably, and 81 percent are concerned about having enough money to live day-to-day. Running out of money is a concern for 80 percent of those at working age people. All of this suggests that pre-retirees fear that life after work may be less comfortable than they might have hoped. Almost 49 percent of working age people say they fear financial hardship in retirement. A similar proportion at 46 percent expect that when they retire, they will have to cut down on everyday spending, and 28 percent believe that they will not be able to eat out as much.
Working age people are worried about their financial preparations for retirement. More than 41 percent think their preparations are inadequate for a comfortable retirement. There is concern from retirees too, with 43 percent saying their preparations were insufficient.
Some of the main reasons why people are not preparing adequately to maintain a comfortable standard of living in retirement are because they:
- Cannot afford it: more than 29 percent of pre-retirees say they cannot afford to prepare adequately for their retirement years.
- Have more immediate financial commitments: more than 34 percent of pre-retirees say they are paying off other non-mortgage debts and almost 23 percent say they had an unexpected expense.
- Did not start saving early enough: around 54 percent of pre-retirees and 42 percent admit they did not start saving early enough.
- Were not aware of how much to save: over 22 percent of retirees say they did not realise how much they needed to save.
- For 87 percent of working age people, saving for retirement is not their main priority. Other priorities include paying off debts at 18 percent, saving for holidays at nine percent, saving for a rainy day also at nine percent, and carrying out home improvements at eight percent.
- Even with the best intentions, major life events have affected 81 percent of pre-retirees’ retirement saving. While some of these events can be planned for, such as buying a home or paying a mortgage (28 percent), starting a family (18 percent) or paying for children’s education (21 percent), unexpected events can also have a significant impact. Almost 17 percent of working age people faced an unexpected illness that stopped them or their spouse from working, with a knock-on effect on their retirement saving.
Factoring in external conditions
The global economic downturn has also had a far-reaching impact. More than 27 percent of pre-retirees say it had a direct and significant impact on their ability to save for retirement. It is also likely to have had an indirect effect on pre-retirees’ economic wellbeing, with 35 percent saying that losing their job, getting into debt or having severe financial difficulty would greatly affect their ability to save for retirement.
With the benefit of hindsight, many retirees would have done things differently before they retired, to improve their standard of living in retirement. For example, over 36 percent of retirees know better than pre-retirees that you need to start planning for retirement early – 38 percent of retirees say they would have saved more, and 35 percent would have developed a financial plan for the future. A total of 33 percent would have saved a small amount regularly and 31 percent would have started saving earlier.
While almost 29 percent of pre-retirees say you can start planning for retirement in your 40s and still maintain a similar standard of living after retirement, significantly less of those retired at 22 percent think you can start at this age. Moreover, more than half at 53 percent of pre-retirees are either not currently saving for their retirement or do not intend to start. Even among pre-retirees nearer to retirement – those aged 45 and over at more than 42 percent are not saving or do not intend to start saving specifically for retirement. There is a noticeable gap between pre-retirees’ intentions towards saving for their retirement, and the reality as experienced by current retirees. Over their working life, pre-retirees on average plan to save 19 percent of their income towards retirement savings and investments, excluding pensions. In reality however, today’s retirees actually saved only 15 percent of their income over the course of their working lives.
Working age people plan to save a constant 20-23 percent of their income towards their retirement savings and investments – excluding pensions – throughout most of their working life. Again, the current reality is different. Retirees saved a considerably lower share of their income – eight to 14 percent – when they were younger (between the age 18 and 44), and only later in life, at age 45-59, they increase the share of their income closer to their intended level, missing out on the full benefits of compound growth.
Working age people do not have enough savings and investments to last them through their retirement. On average, pre-retirees expect that their retirement savings and investments that exclude pensions will run out 11 years into their retirement. With retirees on average fully retiring at age 55 and a typical life expectancy in Brazil of 74 years, pre-retirees face an eight-year gap when they will be solely reliant on any state, employer or personal pension provisions they may have.
Among pre-retirees, women in particular do not have enough savings and investments to last them through their retirement. Women expect their retirement savings and investments will last just 10 years, but with an average retirement period of 22 years, this leaves 12 years when women will be reliant solely any pension provision they may have. The situation is better for men as their savings and investments should last them for 13 years of an average 15-year retirement. However, if men retire before the age of 55 then their retirement funding gap will widen further.
The recognition by retirees that a different path in working age savings would have driven to a more comfortable retirement only reinforces the understanding of HSBC Fundo de Pensão that there is a need to educate members to start early and save for retirement, as well as spend an adequate amount to retirement savings. With life expectancy getting longer, it becomes even more important to adequately save for retirement. The first step to be taken is to create awareness and HSBC Fundo de Pensão is constantly making efforts to make it happen. It also insists on placing specialised consultancy services to guide customers in their choice of the most appropriate products for their company and its employees.
HSBC is a member of the Associação Brasileira das Entidades Fechadas de Previdência Complementar, and has been selected by Associação Nacional dos Contabilistas das Entidades de Previdência as the best multi-sponsored pension fund in Brazil. Its administrative services are provided by HSBC Administração de Serviços para Fundos de Pensão (Brasil), while assets are managed by HSBC Global Asset Management, one of the largest managers of third-party assets in Brazil.