What is the strategy for a comprehensive retirement plan?

A comprehensive retirement plan should include an investment strategy for pre- and post-retirement, providing for the risks of leaving the labor market.

Mr. Pramoth Rajendran, Country Head of Wealth Management and Personal Financial Services, HSBC Vietnam.

Three risks that cannot be ignored

When it comes to retirement planning, Vietnamese workers often focus primarily on the goal of saving enough money to ensure their desired standard of living after retirement. However, it would be remiss to ignore some of the needs after leaving the labor market. It is important to not only plan to maintain a regular cash flow for daily expenses, but also to consider things that arise after leaving work, such as unexpected medical expenses.

A comprehensive retirement plan should include an investment strategy for both pre- and post-retirement. There are three risks that cannot be ignored in retirement.

The first is longevity risk. Although longevity is a great blessing, it also comes with financial risks for retirees. Data shows that Vietnamese people live quite long lives. According to data from the General Statistics Office of Vietnam, in 2023, life expectancy at birth for men is 71.1 years and 76.5 years for women. The average life expectancy of Vietnamese people is 73.7 years, an increase of about 5 years compared to 25 years ago. With the advancement of medical technology, reaching the age of 100 is no longer a distant milestone. However, if pension funds are not enough to cover daily living expenses, longevity becomes a notable risk.

At the same time, an ever-present risk is the risk of inflation. About 20 years ago, a bowl of pho cost only about 7,000-10,000 VND. Now, the price has increased to 50,000-60,000 VND/bowl. These figures show the impact of inflation and rising prices. Over the past 30 years, Vietnam's average inflation has been about 5%/year, reaching a record high of 28.32% in August 2008, while world inflation has also remained at a relatively higher level for a long time. If investment returns do not keep up with or exceed inflation, rising living costs will gradually erode retirees' savings.

Finally, there is investment risk. Faced with inflation risk, retirees may consider investing to achieve capital appreciation through the difference in bid-ask prices. However, investing often comes with risks. High-risk assets such as stocks have higher price volatility but also bring higher-than-expected returns. Low-risk assets such as bonds have lower price volatility but also come with lower-than-expected returns, thus not effectively solving inflation risk.

Therefore, retirees need to find a balance in their investment portfolio as well as pay attention to diversifying investment risks.

Post-retirement planning

Although life expectancy, expected standard of living and financial situation are different for each person, we all face the same challenges after retirement, such as capital appreciation, steady cash flow, longevity, inflation, investment and medical expenses... In terms of investment, a suitable investment portfolio for retirees needs to generate steady cash flow to meet daily living needs, while addressing inflation risks through capital appreciation.

A portfolio may consider including some bonds to reduce volatility and increase cash flow. At the same time, a suitable amount of risky assets such as stocks can be added to the portfolio to increase the potential for capital appreciation to cope with inflation. There are also asset-based funds designed to provide regular dividends.

These funds invest in a variety of asset classes according to predetermined risk levels to promote capital appreciation and risk diversification. They also provide diversified dividend levels to meet the cash flow needs of different investors. When planning for retirement, we can consider using a suitable annuity product to hedge against longevity risks.

To prepare for difficult times, we can add health insurance provisions to ensure that we cover medical expenses that may arise as we age. Everyone will have their own way of preparing for retirement, so we can consider utilizing different investment portfolios to cope with different challenges that may arise in the years after retirement.

Adapt to change

The second Vietnam Wealth Advisor Summit (VWAS) 2024 - the only forum organized by Investment Newspaper and the Vietnam Wealth Advisor Community (VWA) will take place on Thursday, June 6, 2024, at Pullman Hotel, Hanoi .

VWAS 2024 has the theme “Adapting to Uncertainties”, with the participation of many prestigious domestic and international speakers. The forum will discuss in depth the global economic scenarios and Vietnam in particular; opportunities, the proportion of investment assets to achieve efficiency in the portfolio and in depth on the stock portfolio.

Source: https://baodautu.vn/chien-luoc-nao-cho-ke-hoach-huu-tri-toan-dien-d216407.html