A new survey of Asian investors reveals that millennials in the region are at substantial risk of a cash crunch during their later years, with many expecting to carry mortgage debt into retirement or even run out of money altogether, according to a survey of Manulife's Investor Sentiment Index.
Millennial investors revealed very mixed expectations about the quality of their financial futures. Despite widespread optimism about their retirement – with nine-out-of-ten (89%) saying they expect to be able to maintain or improve their standard of living in retirement – nearly one-third of millennial investors also expect to run out of money later on in life.
"Asia's millennials are naturally optimistic about their retirement as many will have grown up in an era of unprecedented economic development. With that prosperity comes a longer and better quality of life – and with that, higher expectations of the future," said Roy Gori, president and CEO of Manulife Asia, in a statement.
"But the economic model that underpins our current understanding of retirement is quickly changing. Young people today will need to start saving, and investing, sooner rather than later. Otherwise they face a retirement of anxiety, not adventure," he added.
While no two investors will have the same retirement requirements, a common rule of thumb is to accumulate around 25 times the amount one expects to spend in the first year of retirement. Yet the survey showed that, on average, millennial investors expect to accumulate just 8.2 times their annual income by the time they retire. While this figure was higher than the regional average of 7.5 times, millennial investors are still well short of the "25 times" benchmark.
"Millennials may have been led to feel a sense of optimism for an improved post-retirement living standard, which is potentially misplaced. Younger generations should plan strategically to begin accumulating wealth at early life stage," said Michael Dommermuth, head of wealth and asset management Asia at Manulife.
Millennials acknowledge the challenges which threaten their financial security later in life. Nearly 38% expect to financially support both their parents and children at the same time – significantly constraining their ability to invest and prepare for life after work. In comparison, only 29% of older investors expect to support their family in the same way.
Younger investors are slightly more concerned than generations past about the impact of health on their finances. Many millennials (39%) expect healthcare to become too expensive during retirement, and more still (43%) expect that their health will deteriorate to the point where they can no longer work. Despite these challenges, 71% of millennials expect to work in retirement compared to only 66% of older investors.
"It's sobering to see how many investors, especially young people, recognize that there are risks to their retirement. Longer lifespans and later retirement will place increasing demands on investment funds, for which every investor should start planning ahead early for future protection," Dommermuth added.
Many investors, including millennials, continue to seek financial security through real estate. Around 45% of millennials who intend to purchase local property across Asia seek to generate rental income from it. However, their expectations of a return may not reflect the diverging fortunes of the real estate market within the region.
"Millennials whom invest in emerging Asia will likely fare better than those who buy a home in maturing Asia, where slowing growth and ageing populations can dampen real estate markets. They owe it to themselves to consider every option available to them in order to plan more effectively for their future," said Dommermuth.