MARRIED couples here will be significantly underestimating the length of time spent in retirement if they base their calculations on a single - rather than joint - life expectancy, a new report by Manulife Asset Management has said. The vast majority of Singaporeans continue to enter retirement as one-half of a married couple, when they should factor in the likelihood of one partner - usually the wife due to women's longer life expectancy - outliving the husband, said Michael Dommermuth, the president of International Asset Management in Manulife Asset Management.
The asset management arm of Manulife Financial thus recommends that married couples here either delay retirement or factor in an additional six to nine years into their financial planning to avoid outliving their retirement funds. Mr Dommermuth said: "We feel that marital status in particular is too often ignored in retirement planning. Not factoring in the potentially significantly longer life expectancy of one partner can increase the potential that they will outlive their retirement savings."
The report provides retirement duration forecasts and assessments of longevity risk, 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. The report said married couples in Singapore face an average joint retirement of 24.3 years, which represents a generally lower degree of "longevity risk" relative to their peers across Asia.
Jill Smith, the senior managing director with Manulife Asset Management (Singapore) Pte Ltd, attributed this to Singapore's relatively high - and still rising - elderly labour force participation rate. "It is important to realise that any given individual has a 50 per cent chance of living longer than the average forecast period."
In Singapore, longevity risk can thus be substantially lowered by delaying retirement or factoring in up to nine additional years when doing financial planning.
The report also indicated that responsibility for retirement income security is increasingly shifting to individuals. However, Singapore households allocate roughly 37 per cent of their financial wealth to cash, despite bank deposits in the nation having historically delivered Bona Fide Real Returns of -1.36 per cent per annum.
The Bona Fide Real Return is the nominal deposit rate (that is, the rate posted at the bank) minus the inflation rate, personal income taxes and a credit risk premium, which is an estimated charge to reflect bank credit risk and deposit insurance arrangements. Returns were annualised for the period Jan 1, 2003, to December 31, 2012.
Ms Smith said: "By shifting even a portion of this cash to more productive investments such as equities or fixed income, which have the potential to deliver returns in excess of bank deposit rates or even a recurring income stream, married couples - and sole survivors in particular - can potentially make their savings last longer."