Gulf News November 28, 2009
30 November 2009
Gulf News: "Way to Withdraw Retirement Funds"
Q. I am about to approach retirement in the UAE and have all along had a retirement fund, using dollar cost averaging, making deposits at regular intervals for the last 25 years. Now when I am retired, what is the best strategy for withdrawing from that fund?
Reaching retirement is a huge, and often welcome, milestone in most people’s lives, and I am sure that you are now very pleased that you made such a wise decision 25 years ago, to set aside some savings for when you arrived at this stage in your life. Part of your financial decision-making over the years will have involved making choices about different types of investment, and part of that may have been affected by factors such as taxation, currencies, and the country where you wish to reside in retirement.
The good news is that you also have choices as to how you use money from the fund. These include leaving the money invested and drawing an income, as and when you need it. Your choice in this regard will depend, at least partly, on the fund, or funds, in which your money is invested, and partly upon your attitude to risk now that you have retired. At this stage of life many people look to invest their money in guaranteed or low-risk funds.
Discussing the options of withdrawal with an independent financial adviser will help guide you in how to best to proceed. One option is to put all your fund money into a bank deposit account and draw the interest as an income. However, particularly at the present time, interest payments may be too low to provide you with an adequate income.
Another option you might with to consider is using your retirement money to invest in government bonds and property. Bonds generally give a guaranteed return, whilst investment in real estate can provide an income through rent. In the latter case, you would need to consider in which country to purchase such a property, and any restrictions or problems that may arise.
Lump sums of money can also be used to purchase an annuity, which means that you will receive a guaranteed income for the rest of your life, and you could also arrange for this to continue for your wife or husband after you die. There are many different types of annuity policies on offer and this can be quite a complex area to navigate.
Of course there are many other investment options available, but these may be quite specialised and not suitable for many people, especially during retirement when safety and security are high on the agenda. It is often said in the investment world; ‘if you do not understand any particular type of investment then you should avoid it’.
It may well be that you will choose more than one of the types of investment mentioned above, since it is generally accepted that “putting all your eggs in one basket” is not a good idea. A good spread of investments can help to provide you with a steady overall rate of return during your retirement.
As mentioned earlier, your country of residence may need to be taken into account in your choice of any of the above investment types. Taxation may be different, not only in relation to the investment itself, but also in relation to your country of residence. Another factor is the choice of investment currencies, since differences in exchange rates may vary significantly over time. Making the ‘right’ currency choice could improve the value of your investments, but the ‘wrong’ choice could prove a serious problem.
By Roy Gaunt, Chartered Insurance Broker, at Nexus Insurance Brokers L.L.C.