Retirement planning is a huge issue, especially here in the Middle East where expatriates can, if they are not careful get into a lifestyle that consumes all of their income and possibly more.
Let us go back to basics. Why do we need to worry about retirement and our future? An obvious question you may say but I believe it is worth raising. Statistics show that we are living longer, so how are you going to survive financially once you stop working?
This is where retirement planning comes in. The goal is to build a lump sum while you are working so that when you retire this will provide you with the means to generate an income.
Once you have identified this need, you should ask yourself three questions — where am I now, where do I want to be and how do I get to that point? These questions will help you focus on the subject and to implement a plan to meet your retirement needs.
How do you achieve this? I would suggest that the simplest way is to save a percentage of your salary while you are working, that will build up over the course of time to a size that is sufficient for you to retire on.
This fund can be a combination of assets. The key issue is that it can generate sufficient income for you to live on. This is different to traditional retirement planning, especially from a UK perspective, where you contribute to a pension plan, and buy an annuity when you retire.
The offshore environment gives an investor a lot more flexibility, but with that comes more responsibility to make your own retirement provision. Another issue for expatriates is that you may no longer be entitled to a full state pension in your home country, so that needs to be taken into account when planning the sum you will need.
It is worth emphasising a key point, which is that the earlier you start saving the easier it is, and the less the initial contributions have to be. This is due to the effect of compound interest, where you are earning interest on interest and so the more time your money has to grow the more interest it will accumulate, and therefore the less you personally have to contribute to meet your goal.
Other crucial points to consider are where your funds are invested and what attitude to risk you are willing to take with your investments. This can have the biggest effect on the sum you have when you reach your retirement age. Do you play safe and leave the funds on deposit, or do you go for a higher risk strategy and invest in emerging markets? In my experience most people feel comfortable somewhere between the two.
The investment strategy needs to reviewed on a regular basis as this can also have a big impact on your retirement funds’ performance as you need to make sure you are investing in the right areas, and if not, then action needs to be taken to move your funds. Regular reviews are another key issue to make sure your funds are on track to meet your retirement goals.
This leads me to my final point, which is to note that it is vital that you talk to a qualified, professional adviser to guide you through the subject of retirement planning. The right adviser will be able to explain the issues and options to you in a clear and concise manner so that you can be confident in the decisions you make and comfortable that they have your best interests at heart.
— The writer is the regional director at deVere Acuma
