Retire in Dubai
Retire in Dubai Image Credit: Gulf News

Dubai: With the pandemic globally driving a surge of early retirements worldwide as businesses close or downsize and older people weigh the health risks of continuing to work, Dubai can be one among many options to settle down if you are looking to settle down overseas.

Several global studies currently indicate that the share of unemployed people not looking for work who called themselves “retired” have surged since the early days of the pandemic. In the US, a Forbes study found that nearly 210,000 workers aged 55-70 have left the labor force since the pandemic began in March.

Official government statistics in the UK indicated a similar rising trend. In the UAE, the COVID-19 pandemic has led to a growing urgency among senior workers to retire and a near 50 per cent increase in enquiries from the people who wish to migrate or retire due to the pandemic backdrop, surveys and agencies indicate.

Experts have been warning that older workers have particularly been facing challenges brought on by COVID-19 — issues, that could lead to retirement earlier than planned. But if you are one among them, and are either looking to retire or have already done so, what are your next steps when it comes to what finances to fall back on.

Risk of not having saved up enough

However, many people haven't saved nearly enough to avoid a steep drop in their standard of living when they retire early, financial planners say. Even those with substantial retirement accounts could make hasty decisions that cause them to run short of money.

In the UAE, almost half of UAE expatriate employees have no plan to ensure an adequate standard of living after retirement except to work for as long as possible, showed a survey done with 500 expatriate employees during the starting months of the pandemic by global consulting company Mercer.

Steps to create a retirement budget

Compile your expenses and identify any areas you can rein in, which include one-off expenses, such as home repairs or a car replacement, which you're likely to face in coming years. A must-have expenses should include health insurance, financial planners advise.

In the UAE, insurance premiums range from around Dh5,500 per year ($1,500) for a 30-year-old expat on a comprehensive plan to around Dh33,500 ($9,120) for a family of four on a comprehensive plan, recent surveys indicate. If your spouse has group health insurance and can add you as a dependent, that's often the most cost-effective way to go. If not, you may find a better deal, matter experts caution.

The problem is you may face decisions about what to do with end-of-service gratuity accounts – which is essentially treated as pension for most and how to take a pension. You may have to figure out what to do with stock options, if you have them.

How does UAE’s current gratuity system work?
The UAE’s current gratuity system pays employees a lump sum based on the length of employment. Employees with at least 12 months of service are entitled to 21 calendar days of their base salary for each year of service in the first five years and 30 days’ base salary for each year worked beyond five years.

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These are complex decisions with huge consequences, so consider talking to a fee-only financial planner. Many financial planning organisations are now offering free counseling sessions for those whose incomes have been affected by the pandemic.

Big withdrawals from retirement funds risky

Taking big withdrawals from your retirement funds early in retirement can dramatically increase the odds you will run out of money, personal finance expert and financial planner Liz Weston wrote for finance website NerdWallet.

"A 4 per cent withdrawal rate - where you take 4 per cent of your retirement account balance the first year and adjust that payout for inflation each year afterward - has historically allowed savings to last for a 30-year retirement," Weston further wrote, while adding that some recommend a more conservative start of 3.5 per cent or 3 per cent, or starting at 4 per cent and cutting back during bad markets.

Weston added that working at least part time can reduce the drain on your savings and may give you access to valuable benefits, including health insurance, and staying connected to the workforce can increase your odds of finding a new full-time job if that's your goal.

Finding other alternatives to cut back

"If you can't cover expenses with your income, you may have other alternatives. If you own a home, have substantial equity (at least 50 per cent) and are at least 62 years old, a reverse mortgage can help you turn your home's value into a guaranteed monthly check. Or you may decide to sell your home and find somewhere cheaper to live," wrote Weston.

What is a reverse mortgage and how does it work in the UAE?
It is a loan provided for elderly citizens who own a house. Under a reverse mortgage, applicants get the loan amount as monthly instalments and lenders claim their loan by selling the property after the borrower's death.

The concept of a reverse mortgage is more or less the same all over the world. There can be a slight difference in the eligibility criteria. The eligible age in the UAE is 62. During retirement, this kind of financial assistance will affect the quality of life positively. This financial resource during dotage comes with some benefits.

"Financial planners also add that several clients discovered they can live well on less money by moving abroad for a few years and Portugal is viewed as a particularly popular destination, they add. Obviously, an overseas move isn't for everyone, particularly in a pandemic when many countries are restricting travel. But for some adventurous types, it could be at least a partial solution."


Dubai’s retirement initiative a boon

Agencies in the UAE indicate that most applicants seeking citizenship or permanent residence overseas want benefits such as free health care, free education, low taxes and visa-free travel. Some countries that offer such programmes have also lowered their investment requirements after the economic impact of COVID-19.

Dubai recently announced a five-year renewable retiree visa, wherein non-Emiratis over the age of 55 meeting who either earns a monthly income of Dh20,000, has savings of Dh1 million or own a property in Dubai worth Dh2 million, are considered eligible for the visa. They should also have valid UAE health insurance.

Dubai’s retirement initiative rivals similar programmes in the Caribbean and in European countries such as the UK, Portugal, Greece, Cyprus, Spain and Malta, whose citizenship-by-investment programmes are sought after by affluent retirees. Most applicants would want benefits such as free health care, free education, low taxes and visa-free travel.

Some countries that offer such programmes have also lowered their investment requirements after the economic impact of COVID-19. Most citizenship-by-investment programmes in Caribbean countries such as St Kitts & Nevis, Antigua and Barbuda and the Commonwealth of Dominica and St Lucia have aggressively decreased their required investment amounts by an average of 15 per cent in the past two months. No other country has made any adjustment to their required investments or costs.