Retirement should be a new chapter that you look forward to with excitement, rather than apprehension. To ensure that you have a comfortable nest egg waiting for you when you stop working, you need to properly plan for your retirement while you are still working. Otherwise, you will have to compromise on your standard of living at an age when you should be the most comfortable. Moreover, since life expectancy is increasing, with it being around 78 years in Dubai currently,1 you need to be prepared to stretch your retirement pot that much further.
A proper retirement plan is more achievable if you start saving for your nest egg early, instead of waiting till you are close to the retirement age. If you start at 40, instead of 30, for example, you will have 10 years less to save up for your retirement pot. The amount that you will have to put aside for your retirement will also be more than if you had started saving at 30. Starting early also ensures that your investments will have more time to grow and have greater potential to weather market fluctuations
Calculate the costs
The first step in planning for retirement is to calculate your likely yearly living expenses at the age you wish to retire. Next, you need to factor in health care costs, medical emergencies and big ticket spending such as a new car. The goal of the calculations is to be as accurate as you possibly can since you want to maintain your standard of living. The expected retirement age in Dubai is 49 for Emiratis and 65 for expats,2 the latter based on visa limitations. As an expat, this means that you will need a retirement plan that spans at least 13 years (assuming your life expectancy is 78 years). If you plan to retire early or in a different country, your calculations will need to be adjusted accordingly. According to the Future of Retirement UAE Report by HSBC,3 people of working age surveyed in the UAE expect to retire at the age of 58.
Put your eggs in different baskets
An ideal retirement would be where you live off the interest generated by your assets. Therefore, a retirement plan will be stronger if you use your savings to invest in different avenues. This distributes the risk and maximizes returns giving you a good shot at building something worthwhile by the time you retire. Try to find the right balance between high, medium and low risk investments in your portfolio and be sure to revisit your portfolio periodically to make the required adjustments.
As you make your calculations and plan your retirement, remember to consider everything from inflation to tax. You need a buffer in your retirement plan to compensate for inflation in your lifetime, whether you retire in the UAE or abroad. Also, consider dividends on investments and interest rates on savings as you choose your options.
Don’t only rely on the end of service gratuity
A lot of young professionals think of their end of service gratuity as their savings for retirement. But don’t only rely on gratuity as the actual amount could be inadequate for your retirement plans. However, this doesn’t mean that you should spend the gratuity you receive at the end of your employment in celebration of a new job. It is good to add it to the retirement pot instead of spending it.
Stick to a long-term plan
Instead of jumping from one investment plan to another, carefully pick a long-term strategy that suits you best. It can be tempting to seek immediate returns, but usually the longer you keep your money invested in a plan, the better your chances of success. Most importantly, don’t panic and make a rash decision whenever the market fluctuates.
Speak to a specialist
Meet with a financial adviser once you have decided the financial objectives for your retirement plan. An adviser can guide you on how to set everything up for a comfortable retirement. Make sure, though, that the advisor is qualified and trained before you have a meeting. You don’t want to end up losing your retirement pot due to bad financial advice.
HSBC Wealth Management Service offers financial planning services. To find out more, visit: hsbc.ae/lifemattersretirement