Are the Taiwanese prepared for retirement?
Apparently not, results of a study conducted by Nan Shan Life Insurance showed.
"When asked whether they are preparing or prepared for retirement, 70 percent of the people (polled) said they were not yet prepared for retirement," AIG Regional Vice President Timothy Schiltz told a news conference on Thursday.
"Only 23 percent of them felt they had adequately prepared for retirement."
The pressure to build a nest egg is growing stronger owing to two factors: People are living longer by the decades -- more so than in prior generations, and retirees cannot solely rely on the government and family members to support them during their retirement years.
A study conducted by the U.S. Census Bureau also showed that people in Taiwan, Japan, Hong Kong, Korea, the U.S. and China are projected to live well into their 80s in the next decades.
From 2005 to 2010, the life expectancy projection for Taiwan is 77.3 years, and this is expected to rise to 82.6 years between 2045 and 2050. During the forecast period, Japan's life expectancy projection is projected to climb to 87.1 from 82.6, Hong Kong's from 82.2 to 86.7, Korea's from 78.6 to 83.5, U.S.' from 78.2 to 83.1, and China's from 73 to 79.3.
"The most important thing to remember is that 50 percent of the people (in Taiwan) are actually going to live longer than (82.6 years)," Schiltz said. "There are also fewer younger people in various countries."
Over the next four decades, the percentage of people aged 65 and above is going to increase significantly, he continued.
"Even today, retirees depend on the state and their families to support them in retirement. This might not work as well in the future," said Schiltz.
"Not only do people have to prepare to take care of themselves (in their golden years), they also have to prepare for a long period of time."
As the population ages, people have to be more self-reliant to make sure they will have more money to live on later in life, he added.
In Taiwan, the percentage of people aged 60 and above will more than double in the next 20 years. As this trend continues, the burden on the younger citizens may increase, an Asian Demographics study showed.
In the U.S. and Japan, people are heavily relying on public pension to support them during retirement. In Taiwan, however, more than half of its citizens above 65 are relying on family support and their children during their retirement years, according to a Ministry of the Interior poll.
Schiltz noted that Asians may need to allocate cash and deposit funds into long-term investment products with guaranteed income for retirement security.
"In Japan and Taiwan, a vast majority of assets are still in low-yielding accounts or deposit accounts. In Taiwan specifically, much fewer assets are allocated to individual annuity-type of products," he said.
Close to 41 percent of the Taiwanese allocate their assets in cash or deposit funds.
"When convincing people to move money from cash or deposits to long-term investments to help them save for retirement, what are their preferences?" Schiltz said. "Safety and liquidity, and those are what cash and deposits provide people. We have to develop long-term products that address these real concerns."
The executive enumerated five techniques to generate supplemental pension income: Payout or income annuity, systematic withdrawals, guaranteed minimum income benefit, guaranteed minimum withdrawal benefit (term of years), and guaranteed minimum withdrawal benefit (for life).
The last item on the list -- guaranteed minimum withdrawal benefit for life -- guarantees periodic withdrawals for life, with the remaining assets maintaining market exposure. This investment product is ideal for clients who want to remain invested in the market but need the assurance that they would not lose their principal investment, Schiltz said.
It has its advantages. The product provides guaranteed income for life without the client giving up investment control, and the client will get a regular stream of income regardless of market fluctuations.
Withdrawals however are often limited to five percent of the principal or step-up value.
Many sophisticated financial techniques are currently being developed by insurance companies, Schiltz said.
"Our goal at AIG is to be able to introduce as many of these products in Taiwan as long as we find the need here, and get the regulatory approval to do so," he said.
Are the Taiwanese prepared for retirement?