Millennials invited to take actions to secure better retirement prospects

Millennials in the UAE suffer from a reality gap when it comes to comparing their retirement prospects and saving habits. Higher life expectancy and complex macroeconomic conditions globally have set the young generation up for a number of challenges they need to overcome before they can hope for a comfortable retirement. In fact, new research from HSBC shows that 51% of working age people across the country agree that Millennials (born between 1980 and 1997) have experienced weaker economic growth than previous generations, a perception in line with the global average (53%).

Despite the opportunities that a life in the UAE offers, working people are concerned about meeting their retirement goals due to a growing number of people requiring support during their retirement (53%) and rising national debts in their home countries putting pressure on funds available to support the elderly (60%).

The Future of Retirement: Shifting Sands, a survey of 18,414 people across 16 countries and territories including 1,127 people in the UAE, provides insights into the key issues associated with the increasing life expectancy around the world and its impact on peoples’ retirement prospects. The study finds that Millennials realise that their generation is facing unprecedented financial pressures but are not adequately prepared for this phase in later life. Alarmingly, it reveals that more than half of people in the UAE (53%) believe Millennials are paying for the economic consequences of the previous generations.

The retirement reality gap

The HSBC study reveals that the young generation of professionals suffers from a reality gap between facts and hopes –  as many as 41% of Millennials have not started saving for their retirement, compared to 35% of Generation X (those born between 1966 and 1979) and 29% of Baby Boomers (those born between 1945 and 1965). Whilst they are aware that global market conditions are not optimum, they have not shown the willingness to start saving early. The sentiment from older generations is reflective of this attitude; in fact, 57% of people say that the young generation do not know how good they have it, enjoying a better quality of life than any generation before them.

Around half of Millennials in the UAE agree they will live much longer and will need to support themselves for longer than previous generations. In fact, this generation is expected to cover for an average of 16 years of retirement, compared to 15 years for Generation X. Despite knowing this, Millennials express unrealistic aspirations to retire two years younger, at the age of 56, than other generations while having more years to cover for during their retiremeent.

Commenting on the findings, Matthew Colebrook, Head of Retail Banking and Wealth Management, MENA and Turkey, HSBC Bank Middle East Limited said: “Despite apparent awareness of the tough macroeconomic conditions their generation is facing globally, Millennials do not appear to have grasped the full implications of their retirement. Our study shows that around two thirds of people in the UAE are aware that it will be more difficult to save for a comfortable retirement following the global financial crisis in 2007/2008. Therefore, it is not surprising to see that only 2 in 10 of people in the UAE think Millennials are in the best position for a comfortable retirement. Therefore, it is now more important than ever before to create a solid financial plan in order to secure a comfortable retirement.”

Readiness to take bold measures

It is not only their attitude towards retirement that sets Millennials apart from older generations but also their approach to taking actions. More than two thirds of Millennials (67%) are amongst the most concerned about running out of money affecting their retirement. And as such, they are ready to take bold measures to counter these concerns; 71% are prepared to cut back on their present expenses to save, compared to 68% of Generation X and 66% of Baby Boomers.

In addition to curbing their spending, the young generation tops the list of risk takers. Around half of Millennials are very willing to make risky investments to ensure their financial stability, compared to 35% for Generation X and 34% for Baby Boomers. In the same token, 52% actively move their money around to get the best return on investment, like the older generations.

As the retirement landscape continues to change at a rapid pace, there seems to be a wide consensus among the UAE working age people that bolder measures and even compromises to some extent are needed in the face of deteriorating retirement prospects. For example, 63% of working age people say they will continue working in some capacity in retirement; 79% would be willing to defer their retirement for two years or more to have a better retirement income; and 44% would work for longer or get a second job to sustain their saving for retirement.

Financial guidance to navigate unchartered territories

The shifting factors shaping the retirement scene are forcing people to adjust their expectations for retirement while making it increasingly difficult to plan.  As such, 80% of Millennials see saving as a difficult but necessary task, compared to 77% for Generation X and 74% for Baby Boomers. However, it is reassuring that 67% of Millennials would actively seek financial advice and realise the importance of speaking to experts, compared to 61% globally and ahead of more mature markets like the US (63%) and the UK (46%).

Colebrook continued: “It is encouraging to see that Millennials are starting to build an awareness towards financial planning and that the average age to start saving is 28. Despite this early start, our experience shows that it is indeed a complex task which requires credible expert advice. In a previous study titled Beyond the Bricks, we revealed that 80% of non-home owners are looking to own one in the next five years. The Future of Retirement survey confirms this sentiment with 65% viewing property as offering the best returns of retirement but unfortunately, only 6% have factored this in their retirement plans. Therefore, HSBC invites all working age people, especially Millennials, to commit to making regular contributions to their savings and have a sustainable financial plan in place. The reality is that working with a trusted partner is only part of the solution and it is rather personal commitment that makes all the difference.”