It’s not unusual to be in your thirties when a nagging concern starts to creep in that you’ve been neglectful when it comes to preparing for your golden years. But don’t freak out.
According to the 2018 Savings Index from National Bonds Corporation, more than eight in ten UAE residents feel they are not saving enough for their future. Eighty-five per cent of those polled said they are not putting away enough cash.
“It's never too late to take control of your finances, even in your fifties or sixties, so millennials have plenty of time,” says Steve Cronin, founder of DeadSimpleSaving.com, a financial planning website in the UAE. “The biggest dangers are not learning how to manage your own money, not saving and investing enough, and not taking enough risk.”
Here are the right steps to help you put a retirement plan into action.
Work out your net worth
“First, understand what you have already – your net worth – which is assets minus liabilities,” advises Cronin.
Assets that count toward your net worth tend to be liquid assets. Some fixed assets can count too, but it depends on whether you can or would sell them if you needed to. Liabilities are a bit easier to classify, basically any money you owe to another person or entity.
Decide how much to save
People often advise to put aside at least 10 per cent of your income for retirement. While this is better than not saving at all, one rule doesn’t apply to everyone. The more you make, the more you will need to save to maintain your standard of living later. High income earners may need to save up to 30 per cent of what they make, according to financial experts.
Next, create a budget
You should track your monthly income and expenses, including a category for retirement savings. A monthly budget shows you how much money you have coming in and exactly what you spend it on – tip: the more detailed, the better. This will then make it easier to create your own spending plan, which will put you in control of your savings for retirement. There are some great free budget planning tools online, find one that works for you.
Watch: Video on retirement planning
Clear any expensive debt
How you manage debt has a big impact on your retirement dreams, so paying off any student, mortgage, medical and consumer debt should be a priority. Lydia Chinery-Hesse, senior associate at Holborn Assets, says that starting with better credit card usage is key. “If you are someone who uses their card a lot and spends more than they had hoped to, I offer you this challenge: withdraw cash for spending,” she says. “Not only will it cause you to think twice, it will allow you to gain better insight into how much you are laying out.”
Don't upsize your lifestyle when income rises
The so-called lifestyle creep is a tough one – especially in a place as dynamic as the UAE. It refers to the gradual increase of your spending as your wage increases. You get a raise, so why not get that fancy car you’ve always wanted? This type of thinking can get you into financial trouble and set you back on your retirement savings. This doesn’t mean you can enjoy those lovely Friday brunches, just resist the urge to splurge hugely the minute you have more money.
The power of compounding
“Many people have the ‘I will think about that later’ mindset,” says Chinery-Hesse at Holborn Assets. “If this is you, I would like to urge you to reconsider. The younger you are, the easier it will be to save and invest for retirement. If you invest $1,000 a month for retirement in thirty years at 8 per cent return you will have about $1,417,613 at retirement. If you only had twenty years to retire you would receive $572,660. This is why it’s important to start now – compound interest is your friend.”
Steve Cronin agrees: “Make your money work hard, because you have plenty of time to ride out the risk over the next 30-plus years.”
Making the most of your retirement savings is crucial if you want to build a nest egg that will withstand the risks of inflation, market turmoil and your unexpected longevity. Plans such as My Future Saver offer a savings solution that maximises your returns from a wide range of award-winning funds. Premium payment terms are totally flexible, and you can make regular withdrawals, as well as change the premiums on your policy.
It is essential to have an emergency fund in place in case an unexpected expense pops up – perhaps a car repair or veterinary emergency. A good rule to live by is having two weeks’ pay or $1,000, whichever is greater, says Cronin. Eventually, you will need an emergency fund that will see you through the worst possible situation – the loss of your job. To cover such liabilities, it is wise to put away three to six months of your salary in a bank account, which is easy to liquidate, but also earns interest at the same time.
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