(Bloomberg Business) — Asians are facing the prospect of running out of retirement savings because they hold too much cash.
The average investor in Asia may see an investment return shortfall of 3.3 percent a year, according to a new report from Manulife Asset Management. That may seem small as a percentage, but it adds up to a very large sum when compounded over 10 or 20 years, it warns.
Costs of the top financial goals across Asia, including healthcare and a home, have risen an average 6 percent a year over the past five years while investment portfolios delivered average returns of just 2.7 percent a year in the same period. Indonesia, China and Singapore are set to see the biggest deficits, the report said.
“If returns fall short of 6 percent in any given year, savers and investors in the region will be taking half a step back for every step forward.” said Michael Dommermuth, executive vice president, head of wealth & asset management for Asia at Manulife Asset Management. “Their preference for holding cash deposits is compromising their returns potential and increasing longevity risk, or the risk that they may outlive their savings.”
The survey covered mainland China, Hong Kong, Japan, Indonesia, Malaysia, the Philippines, Singapore and Taiwan. The main financial concerns were retirement, paying for children’s higher education, meeting current living expenses, purchasing a primary home and saving for a rainy day. The last includes unexpected healthcare costs.
Japan is the exception, with a surplus of 2.7 percent, but this is “almost certainly an aberration brought on by a combination of a long-standing period of almost zero inflation and a recent run of spectacular stock market returns driven by Abenomics,” the report said.