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RetireWise Programme
Established in 2012 and supported by four financial regulators andthe Education Bureau, the Investor and Financial Education Council(IFEC) is a public organisation dedicated to leading financial literacyin Hong Kong. The IFEC promotes and delivers free and impartialfinancial education resources and programmes through itsconsumer education platform, The Chin Family, and leads theFinancial Literacy Strategy to create a conducive environment forstakeholders to deliver more quality financial education to varioussegments of the Hong Kong population.
Learn more about the IFEC at www.ifec.org.hk.
Investor and Financial Education Council
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Are you prepared for retirement?
Pros and Cons of Early Retirement
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Understand 3 elements before developing your retirement plan
Social safety net
Mandatory contribution scheme
Voluntary savings
Informal support and other formal social programmes
Pillars of retirement life
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Male
2012 80.7
2018 82.2
2041 84.4
Female
2012 86.4
2018 87.6
2041 90.8
Life expectancy
Prepare for 20-30 years of retirement expenses
Source:Population Policy Consultation Document, HKSAR Government 2013“Vital statistics,” Centre for Health Protection website, https://www.chp.gov.hk/tc/statistics/data/10/27/111.html, accessed June 17, 2019.
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• Source：Composite Consumer Price Indices, HKSAR Census and Statistics Department
Inflation
-6.0
-4.0
-2.0
0.0
+2.0
+4.0
+6.0
+8.0
+10.0
+12.0
+14.0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Annual rate of change
2.4%
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Common mistakes in building/managing retirement fund
• Starting too late
• Running out of money in retirement
• Inappropriate investment
Common mistakes in building/managing retirement fund
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What should I do to be prepared for retirement?
6 Basic Steps in Retirement Planning
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1
2
3
4
5
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Assess your financial situation
Create a budget
Assess your needs in retirement
Know your risk tolerance
Work out and implement your plan
Review your plan regularly
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Assess your financial situation
Assets Liabilities
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Net Worth Calculator
https://www.thechinfamily.hk/tools/networth/en/index.html
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Create a budget
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− Ins: Salary, commission, allowances, etc.
− Outs: Daily expenses, mortgage repayment, etc.
− How much can you save each month?
Track the ins and outs of your money
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Money Tracker Mobile App
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Budget Planner
https://www.thechinfamily.hk/tools/en/budget.html
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Assess your needs in retirement
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What are your retirement goals?
Required savings
Protection needs
Estate planning
Investment strategy
Lifestyle
Medical services
Wealth distribution
− Any possible income?
− What kinds of expenses will be increasing?
− What kinds of expenses will be decreasing?
Discussion: Income vs. Expenses in retirement
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Are you aware of the impact of inflation?
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Year 2019: $150
Year 2020: $155
Year 2029: $202
Year 2039: $271
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Median charges for surgical operations/ procedures
Hong Kong Medical Association Doctors’ Fees Survey 2018http://www.hkma.org/english/newsroom/news/20190125%20HKMA%20Doctors%20Fees%20Survey%202018.pdf
2014 2018
Minor $5,500 $7,000
Intermediate $15,000 $20,000
Major $30,000 $40,000
Ultra-major $60,000 $80,000
Median charges for General Practice and Specialist Practice
2010 2014 2018
GeneralPractice(3 days of
medication included)
$200 $250 $300
SpecialistPractice
$568 $700* $800*
*Except Family Medicine
Hong Kong Medical Association Doctors’ Fees Survey 2018http://www.hkma.org/english/newsroom/news/20190125%20HKMA%20Doctors%20Fees%20Survey%202018.pdf
Assumptions: Retirement savings - HK$3 million; Monthly expenses after 60 years old - $9,253
Inflation and purchasing power
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Calculate your
retirement budget
Savings and investments
Retirement fund
Expenses
Delay retirement
Review retirement needs
Increase retirement fund by saving or investing
Manage risks (e.g. purchasing medical insurance
policy to reduce medical expenses)
Retirement Needs > Retirement savings
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Know your risk tolerance level
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Assumptions: Retirement savings - HK$3 million; Monthly expenses after 60 years old - $9,253
Inflation and purchasing power
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66 68 70 72 74 76 78 80 82 84 86 88 90
3%
5%
7%
10%
Age
8780
77
75
73
87
81
78
74 Average annual rate of return: 3%
An
nu
al r
ate
of
infl
atio
n
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Proper steps in investing
Understand investment tools
Measure your risk tolerance level
Understand your financial situation
Define your investment goals
Measure your risk tolerance level
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Factors Change Risk toleranceAge
Investment Horizon
Assets
Financial Liabilities
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Select investment products that suit your needs
▪Review your risk tolerance level
▪Understand product features and risks before investing
Your risk tolerance
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Common financial services / products in retirement planning
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Bonds
Example: Fixed-rate bonds
Coupon
Face value/Principal
Issue price /market price
Issuers and credit rating
Interest rate
Carry out transactions before expiry
Credit rating
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Moody’sStandard & Poor’s/
Fitch Credit risk Rating description
Aaa AAA Lowest Investment grade
Aa AA
A A
Baa BBB
Ba BB Non-investment grade
B B
Caa CCC
Ca CC
C C Highest
Funds
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Investment objectives and strategies
Fees and charges
Distribution policies
Annuities
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Payment period
Payout periodPayments
Pay the premium in lump sum or in instalments
Withdrawals
Involve insurance cost
Check the guaranteed and non-guaranteed return
Early surrender can incur significant loss
Withdrawals for a specified periodor lifetime
HKMC Annuity Plan – Key Points
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Eligibility HK permanent residents aged 65 years or above
Premium term Single premium
Minimum premium HK$50,000
Maximum premium HK$3,000,000
Benefit term Whole of life
Payouts Starts immediately after the premium is paid Offers a guaranteed and fixed amount of
monthly annuity payouts until death
Monthly payout amount
Depends on gender, age and premium amount Online calculator:
https://www.hkmca.hk/hkmcaphp/php/calculator_web.php
Must comply with the guideline issued by the Insurance Authority
The deduction cap is $60,000 per year, which is an aggregate limit for both qualifying deferred annuity premiums and TVC
List of QDAP available in the market:www.ia.org.hk
Tax deductions for qualifying deferred annuity premiums (QDAP)
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Example 1: Daisy (Single person)
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Monthly income $20,000
Annual income $240,000
Original tax payable $3,760
Amount of QDAP premiums and/or of TVC
$12,000
New tax payable $3,040
Note: The above example takes 20 March 2019 as the date of calculation and assumes that
Daisy is only entitled to basic allowance and tax deductions from MPF mandatory
contributions.
Example 2: Ken (Married person, 1 child and spouse not working)
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Monthly income $60,000
Annual income $720,000
Original tax payable $36,060
Amount of QDAP premiums and/or of TVC
$60,000
New tax payable $25,860
Note: The above example takes 20 March 2019 as the date of calculation and assumes that
Ken is only entitled to basic allowance, married person's allowance, child allowance and tax
deductions from MPF mandatory contributions.
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Points to consider
1Prepare emergency fund before buying a annuity plan
2Differentiate between guaranteed and non-guaranteed income
3Be aware of the impact of inflation on the purchasing power of the monthly payouts
Critical Illness Life Insurance
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Advance benefits vs. additional benefits
Definitions and exclusions
Multiple claims?
Coverage
Voluntary Health Insurance Scheme
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Source: “Voluntary Health Insurance Scheme – Choose with Confidence”booklethttps://www.vhis.gov.hk/doc/en/information_centre/e_booklet.pdf
Use residential property in Hong Kong as security to borrow from a lender
Payment term (10, 15 or 20 years or throughout the entire life)
Pay attention to the costs and expenses (e.g. interest payments, mortgage insurance premiums, counselling fees, etc.)
Understand your financial needs and how this arrangement may affect your estate planning
Reverse mortgage
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Use your life insurance policy as collateral
Convert the death benefits into monthly payouts over a fixed term or throughout the borrower’s entire life
Eligibility: aged 60 or above holding a valid Hong Kong Identity Card, not an undischarged bankrupt or otherwise subject to bankruptcy petition or individual voluntary arrangement
Involves interests, mortgage premium, legal fees, handling fees, etc.
Details: http://www.hkmc.com.hk/eng/our_business/policy_reverse_mortgage_programme.html
Policy Reverse Mortgage Programme
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Work out and implement your plan
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Emotional investing
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Confident
Fear
Buy
Sell
$
Investing with investment goals
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Sell Stop-loss
Stop-gainSell
Risk Diversification
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Portfolio 1 Portfolio 2 Portfolio 3
Assets
Stock A (Bank sector - China)
Stock B (Bank sector - HK)
RMB Bond
RMB Deposit
Value
$30,000
$20,000
$20,000
$30,000
Assets
Global equity fund
China equity fund
Stocks (HK)
Value
$50,000
$40,000
$10,000
Assets
Silver Bond
RMB Deposit
GBP Deposit
Value
$30,000
$30,000
$20,000
$20,000
Global equity fund
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Review your plan regularly
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Measure your risk tolerance level
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Factors Condition Risk tolerance level
Age
Investment Horizon
Assets
Financial Liabilities
Asset Allocation (example)
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Stock Bond Cash
Age
per
cen
tage
6 Basic Steps in Retirement Planning
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1
2
3
4
5
6
Assess your financial situation
Create a budget
Assess your needs in retirement
Know your risk tolerance
Work out and implement your plan
Review your plan regularly
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Q&A session
Thank you!
DisclaimerThis presentation is intended to provide a general overview for information and educational purposes only and is not a comprehensive treatment of the subjectmatter. The information is provided generally without considering specific circumstances and should not be regarded as a substitute for professional advice. TheInvestor and Financial Education Council (“IFEC”) has not advised on, passed on the merit of, endorsed or recommended any of the products/services or types ofproducts/services referred to in this presentation. Readers/ Audiences should seek professional advice if they consider necessary.The IFEC endeavours to ensure that the information contained in this presentation is accurate as of the date of its presentation, but the information is providedon an “as is” basis and the IFEC does not warrant its accuracy, timeliness, or completeness. The IFEC has no obligation to update this presentation as law andpractices change. In no event shall the IFEC accept or assume any liability (including third party liability) nor entertain any claim for any loss or damage of anykind howsoever caused arising from or in connection with the use of or reliance upon this presentation (including whether caused by the IFEC’s negligence orany error or omission in information or otherwise). Examples and case studies provided in this presentation are for educational purposes only. All backgroundinformation, characters and situations created for the examples and the case studies are fictitious.
CopyrightThe Investor and Financial Education Council (“IFEC”) is the owner of the copyright and other intellectual property rights in this presentation. This presentation(in whole or in part) may not be reproduced or distributed, or used for commercial purposes, without the prior written permission of the IFEC.
Copyright © 2019 Investor and Financial Education Council. All rights reserved.
