How much do you really need to save for retirement? Image Credit: Seyyed Llata | Senior Designer, Gulf News

Dubai: Retirement has often been regarded as a momentous milestone to mark the end of a long work career. But is that still the case?

An increasing number of statistics currently indicate that the parameters of the post-employment period is becoming more fluid among retirees as the years go by. Here’s how.

An analysis of surveys conducted worldwide since 2017 found that an average of over 30 percent of workers over age 65 had previously retired — only to re-join the workforce.

And for those still in retirement, roughly half of those surveyed said they would return to paid work if the right opportunity presented itself.

For example, as of 2019, more than 20 per cent of adults surveyed globally, aged 65 and older, were either working or looking for work, compared with 10 per cent in 1985.

Retirement years may have been lesser known for earning a regular income up until now, with the post-work years seen as either a time your savings are put to work or you earn an income on the side.

Retirement years may have been lesser known for earning a regular income up until now, with the post-work years seen as either a time your savings are put to work or you earn an income on the side.

Putting your savings to work

After you stop earning an income from working a full- or part-time job, your savings can start earning an income for you. But the income you earn pre- and post-retirement needs to be treated differently.

The income you earn post-retirement is very different from income during your working years. When you were employed, you probably had a single employer and a single income source.

As a retiree, you likely receive income from multiple sources, including one or more retirement accounts, a pension or gratuity, physical assets that give you an income, an investment account or two.

While working, you probably receive a salary or pay regularly, such as every month. As a retired person, you might receive income monthly, quarterly, annually, or even sporadically.

Given the fact that part of your retirement income likely will come from investments (savings), keep in mind that you are advised to make conservative use of it to make them last your retirement.

This leads to the next question on whether or not you should work or earn an income post-retirement? For that we need to analyse whether your savings will suffice after deducting retirement-related expenses.

Planning to work post-retirement?

Planning to work post-retirement?

While everyone's goals and circumstances will be different, it's also a fact that continuing to work will affect your assets and may require new, careful strategies for managing your income.

But what motivates people to ‘un-retire’ or re-start a job career? Here are some things to think about when considering working into your later years.

But before you head back, financial counsellors say it’s essential to get a firm grasp on your current cash flow and budget.

Working in retirement can supplement your income but it’s important to understand what you’ll be gaining — and potentially losing — in the process.

If money is your primary motivator, look for jobs with wages and benefits that fill your income gaps without jeopardising your benefits or negatively affecting your bottom line, experts explain.

Seeking financial stability foremost

Seeking financial stability foremost

If you're like most retirees, you may have enough savings and income from your retirement plan to cover the basics, but you'll also need to consider inflation, long-term care, and rising medical costs.

According to the US-based Insured Retirement Institute, only 18 per cent of baby boomers worldwide are confident they will have enough money to comfortably live in retirement. However, that confidence increases to 45 per cent if they own an annuity.

What are annuities?
An annuity is a series of payments made at equal intervals. Examples of annuities are regular deposits to a savings account, monthly home mortgage payments, monthly insurance payments and pension payments. Annuities can be classified by the frequency of payment dates.

For seniors who didn't save a large enough nest egg, continuing to work may be a necessity. But even if it's not, having an income helps to supplement and stretch that savings for the longer life spans than is currently expected.

Working during retirement means it's possible to keep your existing savings — and continue earning interest — while living off your extra income. Also, your pension benefits from your former employer are normally not affected unless you plan to return to work for them.

Factoring in retirement costs

There are various formulas to estimate retirement expenses, all of which are rough guesses at best. A known rule is that you'll need about 80 per cent of the amount you spend going into retirement.

That means if you make Dh100,000 annually at retirement, you need at least Dh80,000 per year to have a comfortable lifestyle after leaving the workforce.

That percentage is based on the fact that some major expenses will go down in retirement – commuting costs and retirement-plan contributions, to name two. Of course, other expenses may go up (like vacation travel and healthcare).

There are various formulas to estimate retirement expenses, all of which are rough guesses at best.

Many retirees report that their expenses in the first few years not only equal to but sometimes exceed what they spent while working. One reason for this is that retirees simply may have more time to go out and spend money.

Experts evaluate how it's common for retirees' expenses to go through three distinct phases: Higher spending early on, modest spending for a long period after that and higher spending near the end of life, due to medical or long-term care expenses.

Now that you have some notion of your retirement expenses, the next step is to see whether your income will be enough to cover them. To do so, add up how much income you expect to receive from your key sources of income.

So how much do you need to retire?
Many financial advisors boil down this answer to one rule of thumb, at least as a starting point: the 4 per cent retirement sustainable withdrawal rate.

Essentially, this is the amount you can theoretically withdraw through thick and thin and still expect your portfolio to last at least 30 years. Not every expert today agrees that a 4 per cent withdrawal rate is optimal, but most would argue you should try not to exceed it.

To figure out how much income you'll need in retirement, take your estimated monthly expenses (be sure it's realistic) and divide by 4 per cent.

So, for example, if you estimate you'll need Dh50,000 a year to live comfortably, you'll need Dh1.25 million (Dh50,000 ÷ 0.04) going into retirement.
Planning your retirement? This is what you need to do
Image Credit: iStockphoto

Time to get an ‘encore career’?

Based on the above deductions you’ve made, do you estimate the need of a post-retirement job or an ‘encore’ career?

Retirement can be the start of a whole new career, but it doesn't have to be the same old work. Many seniors thrive in encore careers and they can provide a second chance at job satisfaction.

An encore career is a second vocation beginning in the latter half of one's life. An encore career is typically pursued for its public or social purpose and a sense of fulfilment as well as for financial reasons.

Encore careers can open interesting opportunities that weren’t practical earlier in life, whether it be working to support a favourite cause or even channelling your passion into your own small business.

For some people over 50, financial stability is a given, so they seek the fulfilment of finding a more purpose-driven, but less lucrative, encore career. But for others, an encore career requires the flow of new income.

While you may not have the inclination or the ability to work at a high-powered job as you age, you can find flexible, interesting work that allows you to have additional income in an uncertain financial landscape.

200314 retirement plan
Time to get an ‘encore career’?

If you're hoping that a new career will help you create a more secure future and a more stable income, there are several steps to consider before you begin searching for that new job:

First, if you're thinking of an eventual job-switch in five, 10, or 15 years, start planning now to set aside savings that will tide you over as you establish yourself in your new career.

The more you save now, personal finance experts opine how the greater peace of mind you'll enjoy as you launch yourself into those uncharted career waters. If possible, hold off on cashing in retirement funds or pensions, if that makes sense for you.

You might also want to take a look at your current lifestyle and make some adjustments before your first day on the new job.

This change in career might be the perfect segue for you to make changes in other parts of your life, meaning you may want to downsize from a house to an apartment or seek more budget-conscious living arrangements. Perhaps it's time to sell your car and rely on public transportation.

Keeping your eye on the fulfilment of a new career can help you adjust to a new set of economic circumstances and feel more in control of your future and your finances.