Business | Your Money
Investment planning considerations as the years pass by
Looking at the options across age groups on how to secure your financial future with sound planning
- By Danielle Smith, Special to Gulf News
- Published: 00:00 July 16, 2011
- Image Credit: Illustration: Jose Luis Barros/©Gulf News
Your nationality, your risk appetite, your job, your family status, your gender, your ethics, your religion… the list of financial character variables goes on and on. Our financial situations and objectives are as personalised and as unique as our fingerprints, which is why working with an adviser with a diversified client base and understanding is so key.
A simple and general way to profile financial types is by age and here we will identify the top-line personal finance considerations, for each generation.
In your 20s
Aim to establish a relationship with a professional financial adviser as early as you can. Find one with a global network to ensure continued coverage in your home market and anywhere else you may go. There are a number of expatriate specialists in the UAE, but few offer a truly global perspective. An understanding of your home market's tax structure is a key requirement of your adviser, as is a full license, internal compliance and self-regulation, independence and access to the best products providers.
Saving for the future does not seem a priority when you are just starting out in your career. Debt from studying, an active social lifestyle and other distractions can compete for a slice of your pay packet. However, your attitude to your finances now usually has the most consequences to your long term financial comfort. So called "DINKS" (double income no kids), are in a great financial position without necessarily realising it and headway made in savings during this time can be a big help for later years with children.
In a transient, expatriate market place, getting on the property ladder might not be your top priority if you are not sure where you will be located long-term. But with property prices continuing to stall in the UAE and correcting in the UK, there are gems to be had if you have the capital and know your market. Speak to an adviser or bank manager about a short-term savings plan for a property deposit. If a mortgage and direct investment is not an option for you, or you have no idea where in the world it would be wisest to invest, speak to an investment professional about exposure to property's safe returns through a property investment fund.
In your 30s
Retirement planning must be a priority in your 30s. The money you contribute to retirement funds in this decade (and even earlier) has the longest time to grow and is therefore the most meaningful. Modern thinking suggests that we should save between 17-20 per cent of our income for a period of 20-25 years, to provide an income comparable to that of your working life. Few companies currently offer retirement planning arrangements in the UAE, so speak to a financial adviser at the soonest to review how best you can make that 17-20 per cent of your monthly salary work for your future.
With the freedom and security of time ahead, one school of thought is that your retirement funds can be invested with a more adventurous appetite at this age. In this instance, an adviser will be able to direct you towards opportunities with a more dynamic growth profile and where you could be seeking a solid 8-10 per cent per cent growth in your portfolio at this stage.
With your life and income likely to vary over the years ahead, any additional savings vehicles should be able to offer you lots of flexibility. Speak to an adviser, or your bank manager, about a scheme that allows for lump sum contributions, draw-downs, payment holidays and other payment variation allowances.
Statistically, if you have not already, you're likely to consider getting married in your 30s. This can often mean joint finances. Be sure to review financial goals with your partner early on in a serious relationship. Money can be one of the chief causes of arguments and clashing attitudes to spending and saving can cause conflict for many couples. Joint accounts are useful for managing household and other shared expenses, but there is a lot to be said for maintaining financial independence. Pre-nuptial agreements are increasing in popularity and this is something that you will need to review with your lawyer, rather than a financial adviser.
Once married, having children may be part of your plans. Offsprings are expensive from conception when you consider health costs and other necessary pre-natal expenses. The expense of children increases as they mature, peaking during their college years. Needless to say children require lots of financial planning, especially their education. Many children of expatriate families in the Gulf tend to study overseas, where the usual study fees and living expenses can more than double. Speak to an adviser about plans to cover schooling through to university fees.
In your 40s
Life goals such as funding higher education for your children, starting wedding funds, travelling or renovating your property are distracting expenses in your 40s, but they should not affect your retirement savings. By this stage, you should be well on your way to building your retirement nest-egg, with at least ten years of savings behind you.
With a mortgage and other dependents in hand — or even without, in your 40s you should have a life insurance policy in place. Speak to your investment adviser or bank manager for more information on a range of flexible products.
It is important to make sure that a will is in place so that any provisions made for your beneficiaries are distributed with accordance to your wishes in the event of your death. A session with a local lawyer will advise you on what needs to be covered and what is enforceable here and what is not. If you have property, a business or indeed any valuable assets here, you will want to ensure they would be passed to your loved ones in the event of your demise, with a Sharia-compliant will.
In your 50s
You are likely to spend as much time in retirement as you will have spent in the workforce. It is important to consider how your investments will keep up with inflation, allowing you to protect your purchasing power for later years to come. Constant re-evaluation of financial and personal goals are key during this time. As retirement grows closer, often in our 50s, firmer decisions are made as to when and where we would like to retire. Tax planning, especially for home market repatriation may need some attention at this stage. It is imperative that you communicate possible future moves with your adviser as early as possible, that provisions may be made. For more in-depth tax planning you may wish to seek advice from a tax specialist who deals specifically within your chosen jurisdiction.
It is rarely a pre-planned event, but divorce is a sad reality that up to 50 per cent of us will have to face at some time and not just in our 50s. In the unfortunate event that a divorce takes place it is important to seek professional advice on the best way to allocate investments and other assets so that gains and potential returns are not negatively impacted.
Another possible, but rarely planned event that could distract your financial plans is the return of children to the home. At the height of the downturn, when graduate positions were so hard to come by, many found their recently emptied nests full again as grow-up children returned home, unable to afford their own rent and living expenses. Situations like this can cause unexpected financial strain at a time when you should be nearing your financial goals. However, this should only ever be short-term pressure and with careful budgeting, it should not side-track your retirement planning.
If you are planning to retire outside of your home country it may be worth while investigating your options of unlocking frozen pensions in your home country. This often brings with it significantly more investment choice and tax benefits. An adviser or financial professional will be able to steer you in the right direction as well as being able to recommend the most cost effective solution for your needs.
In your 60s
Ideally, by now you are not contributing to your retirement funds, but you are relying on the income from those accounts to fund your lifestyle. It is a common misconception that at this stage you need to be less active in the management of your pension fund. Once you have stopped contributing to a retirement fund you must apply a very cautious strategy to ensure capital is not affected by any downturns or corrections in the market. At this stage your main considerations are preservation of capital in line with out-performing inflation.
A financial adviser will be able to advise you on a suitable income generating strategy; this could range from drawing down on an investment fund, purchasing an annuity to buying a property and living on the rental yield. Seek professional advice but be sure that your thoughts and opinions are taken in to account. You have worked hard to build your nest egg and you must feel comfortable with the retirement strategy that is now put into place.
From your 60s onwards, health care may become a budget priority and ideally before now you should have comprehensive cover in place. Premiums may rise later in life, so shop around and ask friends for recommendations. It is worth having contingency funds for ill health, speak to your adviser about this.
In the instance that you haven't planned adequately for a comfortable retirement there are a few options available.
Assuming that you have a valuable equity stake in your property, releasing some of this value may be an option either by using an equity release programme or downsizing your property.
It is a good idea to tackle estate planning as early as possible. However, constant review as time passes in your 70s is important as rules and regulations change. Hopefully by now the hard work of planning and preparing for your retirement has paid off and you are now able to enjoy your free time without financial constraint.
Right attitude to finances
20s:
Aim to establish a relationship with a professional financial adviser as early as you can. Saving may not be priority but attitude towards finance go a long way to determine your future financial comfort
30s:
Retirement planning must be a priority. Retirement funds can be invested with a more adventurous appetite at this age.
40s:
By this stage, you should be well on your way to building your retirement nest-egg, with at least ten years of savings behind you.
50s:
As retirement grows closer, often in our 50s, firmer decisions are made as to when and where we would like to retire. Tax planning, especially for home market repatriation may need some attention at this stage.
60s:
Ideally, by now you are not contributing to your retirement funds, but you are relying on the income from those accounts. At this stage your main considerations are preservation of capital in line with outperforming inflation.
The writer is Area Manager, PIC deVere. Opinion expressed here is personal and do not reflect that of Gulf News.
More from Your Money
More from Business
Business Editor's choice
-
China breaks West's solar monopoly
Some countries in the world, especially Germany and the United States, have made considerable efforts to invest in developing solar energy cells
-
Burberry store spree will cut profit
Trenchcoat maker forges ahead with investment strategy targeting emerging markets
-
Laws needed to spur region bond markets
UAE Central Bank calls for creation of a centralised Sharia board to facilitate the sale of sukuk
