The importance of planning for retirement

Dubai: Financial planning for retirement is not a priority for many people across the Middle East and North Africa (Mena) region, what are the repercussions of this and what are the solutions?

To look at the issue we should first ask: Are we in a retirement crisis?

Saving for retirement is becoming a critical issue for many of our citizens in a region where culturally, retirement planning as a discipline and as an industry is very much in its infancy when compared to Western markets. When people do reach retirement age, there is the real potential that they could have another 25 to 30 years plus during which period they will need to provide for both themselves and their families with ongoing expenses which could include housing, education and health care.

As a society, we focus on today’s needs rather than plan for tomorrow’s requirements. This is exacerbated by the increased cost of day-to-day living in tandem with unexpected and emergency expenses, which can often drain financial resources at the expense of long-term saving. As a result, our view is that as a region we are in a “retirement crisis”.

This ‘crisis’ is due to the lack of financial planning and savings in order to plan for unexpected expenses in the short term and to support one’s later years in comfort over the longer term. On a monthly basis for example, approximately 30% of Mena citizens, 28% of nationals of the Gulf Cooperation Council (GCC) and 20% of GCC expats save nothing.

Longer term, the real dilemma and worry for many people is that once they approach the end of their full-time working career, it is often only then that they realise that they do not have the financial resources in place to continue their families’ lifestyle in a way that they have become accustomed to.

What can be done?

Although we currently live in challenging economic times, there are a number of ways that people should begin to manage their money and to plan for their financial futures.

A good place to start for example would be to calculate how much income your family would need if the main ‘money earner’ died or became too ill to work and what would the cost would be to maintain the family’s lifestyle, service debt commitments as well as continue to save.

Ideally, people should start to save for retirement in their mid-20s putting aside 10% of their monthly salary. Our view is that by the time a person reaches their mid-40s, they should have saved up to four times their annual income. By mid-50s, one should aim to have saved up to 8 times their annual income. At 60-65 yrs old, the average age of retirement, a regular full time career worker needs to have saved 11 times their annual pay. To achieve these goals, people need to save.

How to manage a savings portfolio?

Once an appropriate savings\retirement programme has been agreed upon and is in place, people should stay focused and ensure that monthly contributions are committed to for the long term. An emergency account should also be in place with 3-6 months of net family income, to address any unexpected expenses and to avoid touching a retirement or savings account. The importance of saving is to ensure a comfortable life post working so it is also critical to carry out regular ‘financial health checks on one’s savings to ensure investments are performing in addition to a detailed annual review to make the necessary adjustments to achieve set financial objectives and retirement goals.

Conclusion

We must all remember that retirement is another life, which could last as long as our working career and as such we must plan for it accordingly. This will ensure that it can be enjoyed to its fullest. They key to financial security in later years is to spend less today, save more and plan for tomorrow!

Jonathan Kemp is Chief Actuary of TAKAUD. Opinion expressed here are his own and do not reflect that of Gulf News.