Even though UAE’s per capita income at Dh178,351, or $48,597 (2011 estimates by International Monetary Fund) makes its residents the sixth-richest in the world, a majority of the country’s residents plan to work even in their golden years as most believe they cannot count on a comfortable retirement after a lifetime of hard work.
According to an 'Emirates24|7' poll, more than a third (34 per cent) of poll respondents said they believe they would have to work until they drop as their financial situation would not permit them to continue to live their current lifestyle if they were to stop working after retirement age.
Another one-fifth (21 per cent) said they would work full-time until they’re 65 years old – the global average retirement age.
However, more than two-fifth of respondents (43 per cent) plan to take it easy after a while of slogging it out at the job front.
Almost 23 per cent of respondents believe they would work full-time until 50 and then go for less hectic jobs whereas another 21 per cent would take it easy after the age of 45 years.
Economists believe the main problem today is that people start saving late in their life. The golden rule is to save as early as possible if one wants a comfortable life in his/her old age.
“The right age to start saving for retirement is as soon as you enter your career,” MR Raghu, Senior Vice-President-Research at Kuwait Financial Centre (Markaz) told this website.
“Remember, initially you may be able to save less given the fact that you earn less at the beginning of your career. But even small savings then can be ploughed to risky investments (like equities or real estate) which then can turn out to be big due to time factor,” he said.
“As you age and rise in your career, you may be able to save more (due to high income) but you cannot take the risk of deploying them in risky assets as you may need the money to be used very shortly and hence any capital erosion of such investments can upset your plans,” he added.
Giyas Gokkent, Group Chief Economist at National Bank of Abu Dhabi (NBAD), agrees with his analysis. “The earlier one starts to save for retirement, the better [it is] because the amount that has to be put aside is smaller if it is done over a longer period,” he said.
Is the situation more acute here as expats will not be entitled to any pension later in life when they are in their own country?
Economists believe this can be different for different people and will depend a lot on the country of an expat’s origin.
“This depends on the benefits provided in the home country. For developing countries where the welfare net is likely to be thinner, the question is likely to be less relevant. The UAE has a system whereby workers are provided end-of-service gratuity,” said Dr.Gokkent.
“In addition, wages in the UAE are typically higher than the home country and workers have an opportunity to use these earnings to secure an appropriate level of comfort for retirement. If it exists, employees should contribute to an employer’s retirement savings plan. If it does not exist, employees should recommend to the management of their company that a retirement savings plan be set up. This will also be a useful method for employee retention from the perspective of the employer,” he suggested.
Commenting on the right and prudent approach to saving for retirement, the NBAD expert said: “One factor that affects how one should approach investment style is age. A younger person can afford to have a more aggressive investment approach and should consider more stock holdings in their portfolio. As retirement age comes closer, it is better to move to a conservative investment approach and include more fixed income instruments, real estate, and deposits.
“Property ownership can make retirement comfort more secure as well and if there are multiple properties, these can generate an income stream and also provide protection against inflation. Whatever the approach, always keep in mind that a diversified portfolio is desirable (in terms of currencies and asset classes). A basket of index funds (focusing on different geographies and asset classes) could be one way to achieve a low cost-diversified portfolio.
Finally, savings for retirement are precisely that and should not be used for other expenses.”
According to Raghu, “Pension plans are good provided you start early in your career. Also, most of the pension plans offer fixed benefits which may get eroded due to inflation as you reach pensionable age.
In my humble opinion, the best pension option is to own an apartment and let it out for rent because rent is the only inflation-proof return.”
However, is there a fixed figure that can secure an individual’s a comfortable life keeping in mind a depreciating currency and inflation?
“This depends on the target level of monthly income that is desired.
Stocks and property are typically good hedges against currency depreciation and inflation,” said Dr. Gokkent.
“Regarding estimating the amount of savings one needs for a comfortable retirement, it is a question of lifestyle. Especially for an expat that has lived in UAE and is going home to retire, societal expectations of your lifestyle may be high and hence you may have to provide for that. A good back-of-envelope-calculation to make will be to see how much you spent on family expenses (including medical) during the last five years and extrapolate that with 10 per cent inflation,” explained Raghu.
Giving advice to the Indian expat in the country, he added:“ For example, if you spent say Rs50,000 per month as average expense during the last five years, and you are likely to retire say in about 10 years’ time, then you may require approximately Rs130,000 per month to keep up the same lifestyle.
“In order to support such a lifestyle, you may need a savings of at least Rs20 million, which assumes a return of 8 per cent on your savings. Alternatively, if you can get a higher return on the same corpus or compromise your lifestyle a bit, then your corpus comes down to that extent.
“I am not sure if expats spend time worrying about their retirement planning as they may be too busy in their work and family life. But time is not only a healer but a sprinter as well. Before you realise, you will be old enough to pack your bags and head towards your retirement. It is never late to find a financial advisor that can put a plan for you and help you implement,” he added.
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