Asian-Americans Start To Embrace New Attitudes Toward Retirement
Financial advisors see Asian-Americans as members of a rapidly growing market learning a new approach to retirement planning.
U.S. census projections show that Asian-Americans will probably make up 4.2% of the population over age 65 in 2020, up from 2.5% today.
In most Asian countries, “my retirement would be my children,” says Tariq Khan, an assistant vice president at MetLife Inc., New York. “The system is that, when I grow up, I have to take care of my parents.”
But some Asian children have always done a better job of taking care of their parents than others, expectations are changing even in Asia, and Khan says traditions that worked well back in the old country are often unrealistic in the United States.
Although many Asian-American parents still hope to depend on their children, “most of those people are in denial,” Khan says.
Financial advisors who want to crack the “Asian-American retirement market” have to start by recognizing that, really, there is no such thing.
The term might conjure up an image of a Chinese immigrant shopkeeper, but it could refer just as easily to an engineer born in Korea who is in the U.S. on a temporary work visa, an Indian engineer who became a U.S. citizen 20 years ago, or grandchildren of Japanese immigrants who think of themselves as “just plain Americans.”
The term could also include immigrants from Asian countries such as Tajikistan, Iran, Saudi Arabia or Israel, although demographers and marketers usually put Americans from the Middle East, north central Asia and East Asia in separate categories.
What all Asian-Americans share with one another–and other American consumers–is a need for advisors to take the time to understand their particular situations.
In the end, “every household and every person has different needs and different wants,” Khan says.
Marketers cant help themselves from making some generalizations, and Asian-Americans have developed a reputation for having solid incomes, a well-developed propensity to save for retirement, and a strong belief that children should try to support their aged parents.
But experts see big differences in the retirement planning cultures of the many groups lumped together in the Asian-American demographic category.
Muslims from India or Pakistan, for example, might want to avoid retirement savings vehicles that pay interest. They might prefer to invest in “Islamic funds” that generate strong returns without violating the Korans prohibitions on usury.
New immigrants from Japan and Korea, countries with sophisticated life insurance industries, might be more comfortable with insurance-based savings vehicles than new immigrants from countries with primitive life insurance industries.
Some people within any demographic group will be more conscientious about saving for retirement than others, and some immigrants or descendants of immigrants may resent clumsy efforts to single them out because of their ethnic heritage.
Khan says the distinction that might have the biggest practical effect on life insurance marketing programs is the difference between immigrants who have lived in the United States less than 10 years and those who have lived here longer.
For the newer immigrants, “the concept of retirement is always, Ill go back where I came from,” he says. “They dont want to give up their link to their home country.”
Some new immigrants might dream of going back to live in their old home countries permanently, and others dream of spending winters there and summers in the United States, Khan says.
But surveys show many Asian-Americans continue to live up their reputation for believing that children should support their elderly parents.
When AARP, Washington, surveyed U.S. adults between the ages of 45 and 55 in 2001, it found only 48% of all U.S. residents said they should be doing, or should have done, more for their parents, and that fewer than one-quarter reported they were actually caring for older adults.
Seventy-two percent of the Asian markets said they should be doing or should have done more for their parents, and 42% were caring for older adults.
Less than one-third of all U.S. residents told AARP they expected their children to take care of them in their old age, but half of Asian-Americans said they expected this.
One of the most important services financial advisors can perform for new Asian-American immigrants is to explain that their children might not be able to support them in their old age, especially if they need long-term care, Khan says.
Determining how much Asian-Americans really save for their own retirement is a little complicated.
The Employee Benefit Research Institute, Washington, reports in its 2001 Minority Retirement Confidence Survey that 74% of Asian-Americans are very or somewhat confident about having enough money to live comfortably throughout retirement, compared with 63% of all Americans.
Asian-Americans were also more likely to say they had started saving for retirement: 78% told researchers their households had retirement savings, while only 69% of all Americans claimed to have retirement savings.
But Asian-Americans werent much more likely to have calculated their retirement savings needs, and 43% admitted to having less than $50,000 in retirement savings.
When financial advisors help Asian-American U.S. citizens who plan to spend all or most of their time in the U.S. after retirement, the technical details are the same as for other U.S. citizens.
But when the clients are permanent residents of the U.S. and citizens of another country, or citizens of both the U.S. and an Asian country, the details might be a little more complicated, even if the clients plan to spend most or all of their retirement years in the U.S., experts say.
Permanent residents “are basically subject to the same tax rules as U.S. citizens,” says Vernon Jacobs, a Prairie Village, Kan., international financial planning specialist.
Permanent residents of the U.S. could have trouble collecting Social Security benefits, and clients who are citizens of other countries should probably see accountants and lawyers familiar with their old home countries to learn what pension, disability and health benefits might be available from those countries.
But Jacobs says the most serious headaches face permanent residents who decide to move back to their home countries when they retire.
If permanent residents who have lived in the U.S. for eight of the last 15 years go back, they have to take “positive steps” to give up normal U.S. citizen tax treatment, Jacobs says. “Theyre subject to U.S. income tax on U.S.-source income for up to 10 years after expatriating.”
That means that the Internal Revenue Service might treat the former permanent residents U.S. pension income and U.S. investment income as taxable income.
Tax treaties between the United States and countries such as Japan often protect people who move from one country to the other against double taxation.
The U.S. also has negotiated several treaties, including one with Japan, that permit affected taxpayers to get credit in one country for Social Security contributions made in the other country.
But “there arent a whole lot of accountants who understand tax treaties,” Jacobs says.
The complexity means that even families of modest means should talk to experts familiar with the tax laws in both the U.S. and their old home countries about plans to retire in their old home countries, just so they know what to expect, experts say.
Families that have more than about $250,000 in investable assets can do more active tax planning by investing some of their retirement assets in variable annuities and variable life insurance policies issued by offshore life insurers, Jacobs says.
For affluent Asians who spend time living in the U.S. but suspect they might go back to their home countries, parking cash in VAs issued by a company based in Bermuda or the Isle of Man could be a strategy for protecting retirement savings from U.S. income taxes after they have returned home, Jacobs says.
Good advisors who specialize in selling retirement services to Asian-American consumers should be familiar enough with their target communities to make referrals to excellent accountants and lawyers who specialize in helping members from those communities, Khan says.
Working closely with accountants and lawyers who serve Asian-American communities can also be a way for the advisors to get referrals, Khan says.
Reproduced from National Underwriter Life & Health/Financial Services Edition, September 9, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.