Question: I have just reached 50 and I think that I have not invested enough for my retirement. I could live to nearer 100 years rather than 80 years old, but want to retire at 65 years as planned. What should I do to make sure that I am not broke in my twilight years?
Answer: It's never too early to start saving for retirement — and never too late. If you need an incentive to save, consider the fact that although most workers feel confident about their retirement, many don't have enough money set aside to pay for it. In your case, this could be very important, especially if you live to the ripe old age that you are expecting. It is not only the income in today's terms that you will need to consider, but you will also need to take account of anticipated inflation both from now until your retirement date and then throughout your retirement years. For example, an inflation rate of just three per cent per annum over 10 years would mean that Dh15,000 per month today would need to rise to more than Dh20,000 per month to maintain the same purchasing power.
You should be realistic about your retirement needs and set a goal or target for the amount of savings that you will have to accumulate in order to generate the income that you will require. Retirees generally need at least 75 per cent of their previous income to continue their standard of living (more if they want to travel or indulge in expensive hobbies). If you are behind target, one way to catch up is to reduce your spending to around 60 per cent of your gross income to build savings and retirement funds.
When planning ahead, focus on the reality of retirement. Thinking about the above points, you can then realistically figure out if you will have the money available to make it happen. If not, you will need to adjust the date or make other choices.
The next point to consider is where you will be living during your retirement as it could be a huge factor in determining how much money you will need. Costs of living in different parts of the world vary considerably. You will need to prepare a budget, not forgetting an allowance for medical expenses since these can become very costly in later years. If you are short of your goal, you could consider a different location.
Once you have begun growing your retirement money, take stock of your investments every year and rebalance them as needed. It is important to have the right asset allocation for your age, income expectations and risk tolerance.
The writer is a chartered insurance broker and sales training manager at Nexus Insurance Brokers.If you have any questions, please e-mail advice@gulfnews.com
