What planning?

Do you plan for your retirement? Or should I ask you which word scares you more: Planning or retirement? As part of my main business, I was supporting a client with their end of service (EOS) benefits which are the equivalent to a pension (or 401(k) or super) in the Middle East. A lot of employees, however, are complaining that these EOS benefits are not enough to prepare them financially for retirement. Yet, and maybe not surprisingly, many people don’t prepare more for their retirement. Why is it?

For many of us, retirement is far away. When I realised that my work life was not even half way, I freaked out. I still needed to work some 20 plus years. It was a horrible feeling! At the same time, I thought maybe this is a good moment to start thinking about my retirement.

While the next part is not meant and should not be used as any financial advice, it shall give you some starting points.

Recognise planning for retirement is daunting and break it down. One of the reasons why many of us postpone and postpone planning for retirement is because we are overwhelmed and don’t know what to plan. Some people are afraid of doing the wrong thing and just wait it out. Allow yourself to be volatile and acknowledge that you may need external help. Break it down into smaller pieces and don’t beat yourself up for not knowing every answer.

Start. Just because planning for retirement is daunting, not doing anything is not an option. Hope is not an option either. Make a start, take a small step.

Decide how you want to retire. Our life expectancy has risen and with the improved medical cover, we’re growing old. Think when you like to retire and how many years you may have to live off your retirement savings. Are you looking at the retirement age of 65, currently applicable for the UAE? Do you want to retire earlier?

Where would you like to live? Unless you’re sponsored, you’re probably leaving the UAE. Will you have a house to live in rent-free or will you pay rent? What are the cost of living in the country you’ll be moving to? What kind of lifestyle will you have? Will you continue the same spending as now, while working? Will some expenses become obsolete (for example, paying school fees for the children) while new ones are added (e.g. more travelling or taking up university studies for yourself)?

The number of US Americans who are planning to work until they’re 66 or older is increasing (49%). Not because they love their work but because they financially can’t to! Now, that is scary!

Find an independent (!) and qualified financial advisor (IFA). Unless you are financially confident and instead of being one of about 60% of UAE residents who rely on the financial advice from their friends, work with an IFA. An IFA can objectively create an individualised strategy with you. Here are 2 articles from Wall Street Journal and Money Saving Expert helping you find an IFA.

Create your own investment strategy. Having an idea about how you’d like to live when retired and your life expectancy, you can estimate the amount of money you’ll require. You can then work backwards, review your current savings and identify what you’ll need to save towards. Don’t forget to factor inflation in!

Your strategy will also depend how old you are when you start planning for your retirement. As a general rule, the younger you are, the more time your wealth has to build and you benefit from the compound rate. If you are younger, you can afford to take big risks. After all, you have the opportunity to rebuild your retirement pot if needed. If you’re closer to retirement, you may want to be less risk averse.

You will have heard the expression “Don’t put all your eggs in the same basket.” Have a diversified plan which may include government pension, fixed income, property, secure assets, domestic and international shares, cash, etc.

Automate your monthly savings. Paying yourself first after you’ve received your pay check ensures you’re following your investment strategy. Plus, you won’t get tempted to spend this money on a new pair of shoes or a weekend trip.

Review your tax obligations. While the UAE is a tax-free environment, you may have to pay taxes in the country where you’re investing or withdrawing. Speak with a tax accountant and your IFA about your obligations and any alternatives. For example, countries like Australia allow different tax rates for non-working spouses who invest in their name.

These are just a few points to get you started with your financial planning for your retirement. Remember I’m not a financial advisor and have my own ups and downs with this topic. Contact a trusted IFA to discuss your individual circumstances and create a strategy which will work for you!

Take the first step today!

Until next time,
Agni