Dubai: According to recent industry surveys, approximately 80 per cent of expatriates in the UAE are not saving enough for retirement. This is a worrying statistic.
Retirement planning is something that expatriates in particular need to proactively prepare for given the absence of public pensions and often limited support of company-based retirement schemes.
It is never too early to start saving for retirement. However, even the most forward-thinking of us are liable to fall into a number of retirement planning pitfalls that could easily be averted.
Here is our list of top five common mistakes to avoid when thinking about retirement:
1. Not planning
Customers often ask when they should start planning for retirement. The answer is simple; the moment you receive your first paycheque you should be thinking about retirement, irrespective of your age! We recommend having a set monthly contribution to your pension plan as a committed outgoing. You can always increase your contributions with any surplus of income, but being disciplined in setting a minimum amount aside is vital.
2. Not growing your retirement fund
Your retirement savings fund is an important part of your overall portfolio and as with all investments, diversification is crucial. In order to protect and grow your retirement savings, think about investing these funds into different assets that reflect your objectives and appetite for risk.
Keeping your pension fund in a low interest yielding savings account may not be the optimal way to hold it.
Investing your savings is important to protect them from inflation and to ensure that they grow in time for your retirement. Seek advice from your relationship manager to devise a plan that best suits your needs.
3. Not planning a retirement budget
There are a number of things you need to consider when it comes to deciding how much you need to put aside each month for retirement.
Personal circumstances, age, employment status and life priorities are all important factors. However people often neglect to think about how they want to retire. What do you see yourself doing? How much income do you think you will need to sustain your lifestyle and for how long? Just as you should put in place a budget for your life today, you also need to think about the sort of budget you might need in the future.
4. Failing to account for inflation
The very definition of inflation means that what your dirham can buy you today will not be the same as what it can buy you in 20 years. Inflation erodes the real value of your savings and this is something you need to keep in mind when thinking about the sort of income you might need post retirement. Investing your pension savings can help counter the effect of inflation.
5. Drawing down on retirement savings too quickly
One mistake that people often make once they have retired is drawing down on their pension savings too quickly. Just as you have been disciplined in saving, you need to be disciplined in spending.
Continue to build your retirement fund in order to preserve and grow its value.
Planning for retirement correctly is vital and something we should all be striving to do. Saving for retirement doesn't simply involve looking at what you can afford to part with today, it also requires looking into the future and thinking about what you will want to afford in the future.
Keep in mind these common pitfalls and try to avoid them as far as possible. As always, seek professional advice to ensure that you get the most from your money.
The writer is Head of Personal Banking for Lloyds TSB in the Middle East. Opinion expressed her are his own and do not necessarily reflect that of Gulf News.
