Retirement. The word means different things to different people, but most will agree that in these financially uncertain times across the globe, putting money away for your golden years as soon as possible is essential. GN Focus asked some financial experts for practical advice for savers in different age brackets.
This boat will have sailed for many, but if you can start saving early then you will be giving yourself a great head start. Young UAE expats could easily set money aside if they follow a few rules, says Andrew Prince, Financial Planner at DeVere Acuma. “When you get your salary, before you spend the money in your account, set aside 30 per cent of your pay and put this in a retirement fund that you do not touch. Although the sum saved may appear modest, you have the benefit of time and the power of compounding. The best way to think of compounding is to visualise a snowball; the more you roll it around, the bigger it gets.”
He says the other benefit of having time on your side is to be able to take a longer-term view of investments. “Many clients stagger maturity dates between five to 25 years so they have a rolling programme of cash to look forward to. There is an old saying from one of my clients: be adventurous smarter. This means being able to benefit from greater exposure to equities within your portfolio. Over time, equities — stocks and shares — have proven to generate a better return over the other asset classes.”
Michael Cunningham, Senior Consultant at PIC UAE, says, “The danger young people face here is trying to emulate the lifestyles of the super wealthy they see around the city. If they avoid this trap, the lack of income tax, and the generally higher salaries mean they can build a good financial future. Plus, people in their twenties usually have no dependents and this means fewer expenses than later in life.”
People in their thirties have generally settled down at work, have started a family and suddenly have real responsibilities. So, naturally this is the age bracket when many people seriously start thinking about their financial future. Those with little spare cash in the bank should not panic, says Rajesh Mirchandani, Director at Pioneer Wealth Management. “Sit with your financial advisor and commit to a plan and review it with them at least every three years. Your retirement amount should be at least 200 times your last month’s expenses. That way, if you kept this money in a bank or pension account and if it pays out even six per cent, it will pay out an adequate amount for your lifestyle.”
Prince says at this time of your life paying yourself before anyone else is important. “Commit to regularly saving at least 20 per cent of your salary before you pay the rent and bills and use it to secure your financial future,” he says.
Renoy Kundukulam, Head of Priority Banking at Noor Bank, says it is important at this point to visualise how you want retirement to look. “Start thinking about the kind of lifestyle you want when you retire and how much you will need to fund it. Many financial experts suggest that to maintain your standard of living in retirement, you will need 70-80 per cent of your final salary for each year of retirement. Therefore you should be able to start saving at least 10-20 per cent of your current income for your retirement.”
Simran Samtani, Senior Partner at Xcel Accounting offered three quick tips for getting your overall finances on track: “Try and eliminate all non-mortgage debts, pay any credit cards on time, plus diversify your portfolio and take a few intelligent risks.”
It’s never too late to get started on saving for retirement, and even if you are strapped for cash, doing something is better than doing nothing, says Cunningham. “Many very motivated clients who feel they have lost time get started on saving in their forties or later,” he says. “Indeed, many people move to the UAE at this age from senior positions abroad precisely to save, as they had been treading water financially where they lived before.”
If you’re in this older age bracket, have paid off your mortgage and are maybe due to receive an inheritance, it is time to think carefully about your next step, says Prince.
“Markets go up and down so it is likely that your focus will now be on the preservation of your wealth and you will be more realistic in expectations. The portfolio will begin to taper towards more secure and less volatile assets, but be mindful that you have 30 or perhaps 40 years of life ahead of you, so contingency plans for things like redundancy must be robust. You may consider downsizing to a smaller property if children have flown the nest.”