A sunny beach holiday, pursuing old hobbies, living life at a leisurely pace, and enjoying time with loved ones. If that is your picture of retirement, like most people, then planning towards it is a must. Let's face it - you retire from work, not life.
How much do your need to retire? Do you retire at 50, 60 or 70? With the average life expectancy of 77.37 years in the UAE, the short answer is it depends on how you planned it out.
Giving up work might seem a long way off but, the real cost of old age is a lot more as you must factor inflation, lesser earning power, dependents and increased medical expenses. That is if life does not throw any curve balls such as job loss, illness, injury or untimely death.
Unlike previous generations, for today's working population, faced with limited or no savings, increased cost of living, job volatility and lifestyle ailments, retirement seems far away. With no pensions, or social security, in the UAE especially for expatriates, the only way is to plan for it yourself.
Here are few things to consider live your golden years happily...
There's never a wrong time to do the right thing. Ideally, you should save 20-30% of monthly income. Even if you save 1000 AED every month for 40 years (the average working lifespan) at a rate of 5% interest, you will have saved significantly. Even the amount saved over the shorter period can go a long way during retirement.
Treat retirement savings as a fixed, recurring, monthly expense like rent, utility bills, groceries, mortgage or a car loan. Saving on a regular basis requires long-term thinking and discipline. Make it a habit. To avoid giving excuses (to yourself), ensure the amount is debited from your paycheck each month and redirected into a retirement fund.
Contributing amounts earmarked for a retirement deter you from spending those amounts on impulse because you are likely to face penalties. Choose to pay regularly and have the flexibility to make top-up payments.
Remember the adage about not putting all eggs in one basket? It is called 'diversification of portfolio' or 'derisking' in financial jargon. It could not be truer when it comes to retirement assets. Spread your assets across savings, gold, property, time deposits and retirement fund. Putting all your savings into one form of investment may increase the risk, and limit returns.
As you grow older, other areas of financial planning, such as asset allocation, will become more important. This is because your risk tolerance decreases as the number of years in which you can recuperate losses goes down. Ensure proper asset allocation based on your age, risk tolerance, medical history, current and planned lifestyle and related factors.
Working within a budget is essential. Your retirement savings should be counted among your budgeted recurring expenses to ensure disposable income is calculated accurately – now and in post-retirement.
As you get closer to your sunset years, rebalance your asset allocation to allow for any adjustments. Before you bring in the experts, on an Excel spreadsheet or paper, jot down your average monthly expenses, rental increases, 2-3% inflation, increased medical costs, income taxes (if you decided to relocate), any any planned life milestones. If unsure, estimate on the higher side. Doing a simple life budget for the next 30-40 years will give you a bird's eye view and prepare you to plan.
If your lifestyle, income and fiscal responsibilities have changed, it is a good idea to reassess your financial profile and adjust the amounts you add to the retirement egg. For instance, you may have finished paying off your mortgage or car loan, or the number of dependents have changed (grown children who are now employed) - increase or decrease the amount you save based on these parameters at regular intervals. After all, life is a work in progress.
In fact, retirement planning is health planning. Not everyone can be healthy for a lifetime and mileage varies or may live long enough to reach retirement. In many cases, savings could go towards medical care. The smarter way is to lead a better lifestyle, be active, and eat healthily. If you have prior medical history, get a full medical checkup to be doubly sure.
Many make the mistake of doing it themselves with half knowledge, or have insurance, savings plans and investment plans operate as islands, which can be inefficient and difficult to manage. Thankfully, there is a range of products and services to help.
For instance, Citibank has 'Lifelong Protection' - a flexible life insurance plan which bridges the financial gaps arising out of unfortunate events. You can customize the premium paying term of 7 years and above with the insurance plan benefits extending up to the age 95.
This plan offers the option to invest in a range of funds, which helps to build policy cash value from 3rd year onwards. It also has optional benefits to cover critical illness, permanent total disability, accidental death, hospitalization, long term care, waiver of premium and family income.
Invest Plus, and Wealth Accumulation Plan are other products worth considering that allow you to save to build a retirement corpus. You can customize your portfolio, currency based on your, risk appetite and market conditions. They give access to your capital by allowing, regular withdrawals or partial surrenders, and the flexibility to add optional benefits, premium increment with surplus cash flow. This lets you spend time on more important things and less on managing your investments.
When you retire, dependents like your spouse and their expenses must also be considered. Investing in a protection solution should give you peace of mind that you and your family need, should you suffer a serious injury, disability, critical illness or worse death. Invest into products that pay a lump sum insurance amount to your designated beneficiary.
Incorporating life cover, critical illness cover, total and permanent disability benefit, covering yourself and your spouse under one life insurance policy is a good idea. Doing so, early you could gives your family your, the financial security they need for their future.
If you are an expatriate, it's important to consult a lawyer and create a notarized will with the Wills registry in DIFC, if you have assets or investments (beyond insurance) that you wish to disburse in the event of your death.
By starting your retirement plans now, give you the best chance of achieving the retirement you deserve. After all, you worked all your life for money. With sensible retirement planning, you can make money work for you.
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