Start early with retirement planning

Question: My father is nearing retirement and I have been helping him put his finances in order and it has made me realise that I need to start saving for my own old age. What should I do?

Answer: From a recent survey conducted by an international bank, it is said that seven out of eight people worldwide do not feel prepared for retirement. Sooner or later we all know we have to face up to how we will live in retirement despite the increasing trend to think we can work until we "drop".

Putting even just a small amount towards your pension when you are young stops you having to find larger sums for your pension in later life. Today, through advancements in medicine and quality of life people are living longer. The implications of this are that the time you enjoy in retirement is going to be longer and you need to consider this when planning your retirement income.

Another factor in relation to this is that people are going to be working longer, and increasingly we will see people easing into retirement over a period of time, often referred to as "phased retirement".

The first thing that you need to do is to set a target for the annual income amount you want to have when you retire in today's terms. That is, how much you would require if you were to retire tomorrow. The target annual income may well be less than the income you enjoy today as your expenses in retirement may be proportionately lower than now. For example, by the time you retire you may hope to have settled debts and paid off mortgages.

Having determined this amount, and to keep calculations as simple as possible, multiply this amount by 20 to determine the estimated fund you would need to provide the sum that would provide you with a comfortable pension. This will be your Target Retirement Fund (TRF) — from this you should deduct the estimated current value of any assets that could contribute to or supplement your retirement income.

Perhaps you plan to downsize your home or have other investments that could be earmarked for retirement provision, for example, if you have been working in the UAE then you will enjoy a gratuity at the end of your employment of a maximum of two years remuneration. Equally, if you already have income sources perhaps from property or previously earned pensions these can be deducted from your target annual income.

When you first look at the amount of the TRF, it can be quite a shock. This reaction should be tempered by consideration of the length of time you have to achieve your TRF and the amount you can comfortably save.

It should also be remembered that this is a simplistic view and you will need to take account of inflation and of course any tax that you will need to pay in the country in which you retire.

However, these additional factors can be considered as part of a regular review of your progress in achieving your TRF and your goal of achieving a comfortable pension.

You are now ready to take the next step, namely to consider the options open to you to achieve your objectives. This will be covered in next week's column where we will look at how you can enlist the help of an independent financial adviser to help you achieve your objectives.

 - The writer is a Chartered Insurer and the Commercial Director of Nexus Group. Opinions expressed here are his own and do not necessarily reflect that of his organisation or that of Gulf News. If you have any question, please email to: advice@gulfnews.com