UAE expats: How to prepare for healthy retirement without breaking the bank
How health and wealth can create challenging scenarios as individuals approach retirement
Balancing health and wealth for UAE expats nearing retirement can be a slippery slope. How to balance out the two aspects, and prepare for the era of retirement without breaking the bank!
The United Arab Emirates (UAE) has emerged as a favored destination for expatriates (expats) seeking career opportunities and a high standard of living.
However, while the economic benefits are evident, the hidden costs of healthcare in old age can significantly impact financial planning, especially concerning retirement.
As expats navigate the complexities of saving and investing in a foreign land, understanding how future health expenses influence their financial strategies is crucial for securing a comfortable retirement.
The healthcare landscape in the UAE
The UAE boasts a modern healthcare system with advanced facilities and a wide range of services. However, healthcare costs can be surprisingly high depending on individual health concerns.
A recent report from the UAE's ministry of health and prevention highlights that the country's healthcare expenditure is expected to reach around $5.9 billion (Dh21.7 billion) by 2024.
For expatriates, this reality translates into the necessity of a robust health insurance, which can vary dramatically in cost based on the level of coverage.
In the UAE, health insurance is mandatory for all residents, while many employers provide health insurance, gaps in coverage or rising premiums can lead to substantial out-of-pocket expenses, particularly for specialised treatments or chronic conditions.
How health costs affect saving and investment decisions
Health expenses significantly impact the financial decisions of expats. The relationship between health and wealth can create challenging scenarios, particularly as individuals approach retirement:
1. Diminished savings potential: High healthcare costs can reduce disposable income, making it difficult for expats to save adequately for retirement. A way to tackle that, it is required by law in the UAE for employers to provide an insurance package for all of its employees. Increasing expenditure on healthcare has a similar effect to decreasing income as it reduces the amount of disposable income available to families to spend on other goods, such as food, education, transport and entertainment. The reverse too is true. With more disposable income, consumers have higher spending power, leading to higher health care expenditure.
2. Altered investment strategies: With rising health costs, many individuals may lean towards conservative investment strategies. While liquidity is essential, overly cautious approaches can limit growth and prevent the accumulation of sufficient retirement funds. Conservative strategies such as cash reserves, maintaining a larger cash reserve can provide liquidity and security. This allows investors to weather financial difficulties without needing to sell investments at a loss.
3. Debt burden: In emergencies, some expats may resort to loans or credit to cover medical bills. This reliance on debt can jeopardise long-term financial security and complicate retirement planning. While medical debt often snowballs into bigger financial burden in the long run, ignoring healthcare costs snowballs debt and hurts wealth too. For instance, someone without financial resources may skip routine care like filling prescriptions, or avoid emergency care entirely to avoid medical debt. But this in turn not only has larger repercussions on health, but hurts your finances in the long run. Unpaid medical bills can lead to calls from debt collectors, dings to your credit report, and potentially bankrupt you.
How do you manage growing or snowballing medical debt
My tip is that you have to pay your future self first. By that, I mean you need to first focus on paying off any and all debt you might have and then start saving up to create an emergency fund in case anything bad happens, god forbid. If you already paid off your debt and have a savings account, 20 per cent of your salary should go into that account. You could even start an investing account and put 10 per cent into investing and 10 per cent into savings
#2 – Calculate how long it will take to retire the debt
#3 – Get documentation of your income and assets to illustrate your financial situation.
#4 – Work out a payment plan that is realistic and fits your needs
While tapping your home equity or retirement accounts to pay off heavy medical debt can be tempting, the pitfalls can be serious. So if you can't pay your medical debt, you can ask for a payment plan that's affordable for you or find financial assistance programs with your credit card or insurance provider, hospital administration or billing department.
If those don’t work, debt experts suggest consolidating the medical debt, which can be done by completing a balance transfer to a new loan, consolidating the debt with another loan on new terms and installments, before exploring the possibilities of tapping into home equity or borrowing from your retirement when all else fails.
How to prevent medical debt from hurting your wealth
• Get familiar with your insurance coverage and out-of-pocket costs, like what the deductibles will be, and call the insurer and ask someone to walk you through all the potential out-of-pocket costs.. you cannot make changes to your policy except during certain windows of time, such as open enrolment or after a major life event.
• Check whether the specifics of your care are covered: After your doctors map out your treatment plan, check whether all the healthcare providers you need to see are part of your insurance network and whether any part of the treatment needs to be pre-authorised.
• Get a cost estimate: If you're uninsured, ask for a cost estimate in advance. Most healthcare regulators worldwide require providers to give uninsured patients estimates of what planned care will cost.. Track costs as they come up and never assume that just because insurance covers one part of your treatment, which goes for everything else.
• Check for double billing: Go through each item on your bill. Even if you've already been discharged and gotten behind on payments, it is worth checking to make sure you weren't overcharged as its common to mistakenly think medical costs are fixed and non-negotiable.
How to balance health costs with financial planning?
Given the potential impact of health expenses, expats in the UAE can adopt several strategies to ensure a balanced approach to financial planning, particularly concerning retirement:
1. Invest in comprehensive health insurance: Expats should carefully evaluate their health needs based on factors such as age, medical history, and lifestyle. Policies that cover a wide array of services, including outpatient and specialised care, can help mitigate the financial burden of unexpected health issues.
2. Utilise health savings accounts (HSAs): Expats may explore international health savings accounts that allow for tax-free contributions earmarked for medical expenses. Such accounts can facilitate better financial management of health costs while ensuring that funds grow over time.
3. Prioritise preventive care: Regular health check-ups and preventive measures can significantly reduce future healthcare costs. By addressing health issues early, expats can avoid the financial strain of more serious treatments later on.
4. Adopt a long-term investment mindset: While it’s important to remain liquid, developing a diversified investment portfolio can promote long-term growth. Collaborating with a financial advisor to create a balanced portfolio that accounts for both immediate health expenses and future retirement goals is essential.
“Investing in long-term financial growth is focusing on investment opportunities can help build wealth over time once debt is under control. Learning about basic investment options like stocks, bonds, and mutual funds can improve financial stability and growth. Investing early and consistently allows compound interest benefits to work in one's favour.” said Arun Leslie John, chief market analyst of a Dubai-based investment company.
5. Consider retirement plans with flexibility: Investing in retirement plans that offer withdrawal flexibility can be advantageous. Options like annuities provide steady income streams, helping retirees cover healthcare costs without depleting their savings prematurely.
6. Establish an emergency fund: Setting aside funds specifically for health-related expenses can be a prudent strategy. Financial experts recommend maintaining an emergency fund that covers three to six months' worth of living expenses, or fund specific to medical expenses, providing a safety net against unforeseen medical costs.
Always be better prepped with savings fund for medical expenses
“None of us like to think about the health problems that come with age. Still, it’s better to be prepared for how much it might cost and how that may impact your retirement.
“To start with, everyone should have an emergency fund for unexpected medical expenses. Such unexpected medical costs can derail your financial goals – especially for expats who often don’t have access to government-sponsored healthcare coverage in the country they’re based in.
“The last thing you’d want is to be forced to liquidate your investments to pay off the bills.
“Your emergency fund should cover at least six months’ worth of expenses. Keep your fund in a low-risk, liquid account where it’s also earning interest so that your funds don’t lose value to inflation.
“Some options include high-interest savings accounts or cash management solutions like StashAway Simple,” said Wai Ken Wong, Regional Director of digital wealth managemeny company StashAway.
Many expats may not be familiar with the intricacies of the UAE's healthcare system or local financial products, making education vital.
“While most expats in the region have mandatory health insurance, it’s important to review your coverage to ensure it fits your needs.
“We recommend prioritising budgeting for premiums that provide the right level of coverage.
“For example, does the insurance cover dependents like your spouse and children? Having adequate insurance coverage means you won’t have to keep a high amount in emergency funds and can move more of your money towards long term investments,” added Wong.
Bottom line: A long-term perspective is key for building wealth, while securing health
As expats in the UAE plan for retirement, they must recognise that health expenses can have lasting implications for their financial stability. By employing proactive strategies and prioritising comprehensive financial planning, individuals can better navigate the challenges posed by healthcare costs.
For expats in the UAE, the interplay between health and wealth presents both challenges and opportunities. As they approach retirement, understanding the impact of health expenses on financial decisions is crucial.
By investing in comprehensive health insurance, establishing emergency funds, and developing a long-term investment strategy, individuals can successfully balance health costs with their financial planning goals. In this dynamic environment, a proactive approach to health expenses will not only safeguard their health but also secure a prosperous retirement.