Gulf News - June 6, 2009
06 June 2009
Gulf News: Providing for the sunset years
I am concerned that I have not yet made any provision for my retirement, how do I go about saving for my retirement?
There are a number of ways to save for retirement, the key thing is to accumulate a lump sum which will provide you with an adequate income in retirement to allow you to continue the lifestyle to which you have become accustomed to or indeed aspire to.
Therefore, there are a number of key considerations to determine an appropriate savings plan: Firstly, you need to decide at what age you want to retire and in turn what is the time horizon for saving. The longer the term to retirement the greater the chance you have of achieving your retirement objectives. If you only have a relatively short term to retirement and have made no previous retirement provision the greater the amount you will need to save.
In addition, you need to consider what level of income you are likely to require in retirement, this is dependent on the lifestyle that you would like to live when you cease work, some people plan to travel the world and have life experiences that they just haven’t had time for during their working life, others are more content with a less lavish and more frugal lifestyle in retirement. It is up to you to decide what lifestyle you want in retirement and therefore what level of income you are likely to require. It is also important to take into consideration the effect of inflation on the level of income that you will require.
Coupled with determining what level of income in real terms you are likely to require, you need to decide what is currently affordable for you to allocate towards saving for your retirement. It is important to determine a level of saving that you know you will be able to maintain over the years to retirement. If you establish a plan with a level of premium that is unsustainable and have to reduce your premium substantially not only will you be unable to achieve your longer term goals you may also incur additional penalties by the plan provider.
Thirdly, what frequency will you be saving? For example, will you be saving on a monthly basis out of salary or regular single premiums out of bonus payments? Monthly saving in the present economic and investment climate of relatively volatile investment markets means that over time you are likely to benefit from the affects of dollar cost averaging.
Fourthly, where do you want your contributions to be invested? It is important that you are aware of your attitude to investment risk and that the funds you invest in are aligned to this. The savings plans available in the UAE offer a wide range of investment choice so it is paramount that you invest in a fund that you are comfortable with.
Finally, once you have determined all of these factors you need to find an appropriate savings vehicle, being an expat based in the UAE you should look to saving into a flexible savings plan that will provide you with the flexibility to increase your contributions as required, alter your fund selection should you wish and indeed allow you to continue contributing into it should you leave the UAE for whatever reason.
The plans available from providers do vary and it is always important to seek independent financial advice to find the most suitable plan to meet with your requirements.
By Sarah Lord, CII chartered financial planner at Nexus.