Importance of Retirement Planning

Who can you depend on for retirement? Are you counting on support from children or are you thinking of getting a pension from the government's pension plan? If so, you may have to think twice!

Because of trends in birthrate declines and the ageing society in Taiwan, social pressures on the next generation are heavier than ever before. Also, in recent statistics published by the Ministry of Interior (MOI) in 2004, the marital status of the country's population over 15 was 54.75% with spouse, but in 2005 the same statistic lowered to 0.63%. In other words, over half of the domestic population was single; coupling with the decreasing birthrate it is now one of the lowest among international rankings. These numbers all signal that the age of “depending on the children” for old age support is over.

No more dependence on children, what about the government's pension system?

There was a recent report in the media about a financial services sector worker who found out the return on his contribution to the government's pension plan to be only NTD 36 for the whole year, enough only for two bus rides. He was disillusioned and stopped his 6% voluntary salary contribution and instead is investing NTD 3,000 a month in mutual funds, which historical results suggest are likely to provide better returns.

In order to qualify to participate in the old pension system, a worker must have worked in the same company for over 25 years or have worked for 15 years when reaching 55, which will entitle them to a retirement pension. Statistics show that the average domestic worker changes jobs every 8.3 years and as much as 85% of the workers for a particular company are not entitled to a retirement pension under the old scheme.

Not qualifying for the old pension system means that you must opt for the transparent new pension system, which does guarantee a pension. However, when you take into consideration last year's return, how much money can you really get upon retirement? Is it going to be enough to cover all the expenses in retirement?

There is also the promising or worrying statistic of the average domestic lifespan! According to the average domestic lifespan of 82 published by the MOI, you must prepare for 22 years of retirement. The minimum cost of living in Taipei was estimated at NTD13,797 per month last year. Although the government's new pension plan and old age allowance programs are under way, the two only add up to NTD 3,000-9,000 per month; this may not adequately cover the actual cost of living.

Planning early is the key!

Precisely because of the changes in the domestic population structure brought about by longer lifespans and lower birthrates, according to an MOI statistic, the number of people living in old age homes have nearly doubled in the past 5 years, and according to a Academia Sinica study, the ratio of elderly over 65 living alone or living only with their spouse has grown 82 times in the past 20 years. These statistics indicate that the ratio of children supporting elderly parents and that of children living with parents have dropped significantly.

The Bureau of National Health Insurance has also published a statistic recently showing that there are currently 570,000 people holding a catastrophic illness card, which compared to 290,000 at the initiation of the National Health Insurance Program in 1996, has almost doubled. On average, there are 2.5 catastrophic illness patients per every 100 National Health Insurance subscribers, and the chance of a catastrophic illness and the associated medical costs are both on the rise.

Since support from children is not necessarily dependable, and stress-related illnesses and accidents are increasing, this in turn results in increases in chronic and catastrophic illness patients; to live healthily and with care in the twilight years, expenses for old age care have become an indispensable part of funds for retirement.

The average nursing home costs, other than cheaper public facilities, range form NTD13,000 to 33,000 for private institutions depending on the amount of care, and to hire an in-home carer will cost around costs NTD20,000. With figures like these, can you afford not to start saving for retirement!

Why not wait until 40 when I become a manager and have more assets for planning? Does saving this little really make a difference?

Financial experts say “Start retirement planning early so the burden will be lighter!” But how much “lighter” does it become? Well, consider these facts: “Saving 10 years later will mean having to save NTD 25,000 more per month" and “Save 5,000 per month from 25 and you reach tens of thousands at 60, but when starting from 35, even saving 10,000 per month won't get you the same amount at 60!” Under the principle that time is the best partner for investment, it is imperative you start planning for your retirement now!