Couples miscalculate retirement earnings

MANILA, Philippines - Manulife Asset Management (MAM) said that many married couples in Asia, including in the Philippines, are significantly underestimating the length of time they will spend in retirement and, as a result, are likely not accumulating sufficient retirement savings.

MAM is the global asset management arm of Manulife Financial, providing comprehensive asset management solutions for institutional investors and investment funds globally.

In a MAM study, entitled “Live long and prosper? Retirement and longevity risk”, Manulife provides retirement duration forecasts and assessments of longevity risk, and the risk that a retiree will outlive his or her sources of income, for married couples in 10 Asian economies: China, Hong Kong, Indonesia, Japan, Malaysia, the Philippines, Singapore, Taiwan, Thailand and Vietnam.

MAM president for International Asset Management Michael Dommermuth said that marital status in particular is too often ignored in retirement planning.

Dommermuth said that the vast majority of Filipinos continues to enter retirement as part of a married couple and thus should factor in the likelihood of one partner, usually the wife due to longer life expectancy for women, outliving the other.

“Not factoring in the potentially significantly longer life expectancy of a partner can increase the potential that they will outlive their retirement savings,” the MAM chief executive said.

The report is accompanied by an online tool, which individuals can use to “reality check” their assumptions about retirement length and their level of longevity risk.

Manulife Philippines chief investment officer Aira Gaspar said that the report finds that married couples in the Philippines face average joint retirement of 20.6 years, which represents a generally ‘lower’ degree of longevity risk relative to their peers across Asia.

“This is primarily due to the fact that the Philippines has a relatively high elderly labor force participation rate and the shortest life expectancy among the 10 markets examined,” Gaspar added.

However, the level of longevity risk is in flux in many of the markets or a relatively high 66-percent correlation between a country’s per-capita GDP (gross domestic product) and its average life expectancy.

“Therefore, life expectancy and longevity risk is likely to increase in the Philippines as the country is forecast to see strong economic growth and rising per capita incomes for many years to come,” the Manulife Philippines investment officer said.

The MAM report said that it was important to realize that any given individual has a 50 percent chance of living longer than the average forecast period.

“Our research indicates that in the Philippines, the chances of outliving retirement savings can be substantially reduced if married couples either delay retirement or factor an additional five to 10 years into their financial planning,” it said.

Policymakers in the region are already taking steps to reduce longevity risk for their citizens.

Many governments have raised their official retirement ages and a recent proprietary Manulife survey found that 64 percent of Filipino respondents are open to such a move.

However, the Manulife research series shows that responsibility for retirement income security is increasingly shifting to individuals and that effective deployment of household wealth could reduce the chances of outliving retirement savings by delivering the potential for returns in excess of bank deposit rates.