How much do UAE expats need to save for retirement?
As we all live longer, our retirement savings have to stretch that much further.
Nobody can expect to take early retirement at, say, 55, without a substantial portfolio of work and personal pensions, investments and other assets, such as property.
Even retiring at 60 or 65 can be a financial challenge unless you start early.
UAE expats may also have little state pension provision to fall back on. On the plus side, they can use their tax-free earnings to build a cushion for their later years.
So exactly how much do you need to save to fund a decent lifestyle in a retirement that you are still young enough to enjoy?
Expert, says the average UAE expat he meets hopes to retire with a retirement pot of about US$850,000.
“Unfortunately, they have average savings of just $125,000, leaving them well short. The vast majority severely underestimate how much capital they require to enjoy the retirement to which they aspire,” expert says
So, taking that as a target, what kind of retirement can $850,000 buy?
The answer partly depends on what age you would like to retire.
It’s a dream for many people, to earn enough to quit the rat race and retire while you’re still young enough to enjoy yourself. Many expats have come to the UAE to do exactly that.
To make this work, you really do have to build a large pot
of money. Most healthy, educated people can look forward to living to 80 or beyond, so if you retire at 55, your savings will have to stretch at least another 25 years.
While $850,000 might seem like a lot of money, given today’s low interest rates, it won’t stretch as far as you might hope. “If you retired at 55, a pension pot of $850,000 would generate income of around $42,000 a year.”
Would you (and possibly your spouse) be happy living on that for the rest of your life? When doing your sums, remember that in many countries, this income will also be taxable.
The chances are you would like to generate a lot more income than that. Doubling that pension target to $1.7 million would still only buy you an income of about $80,000 a year. Early retirement will be out of reach for most people.
If you still want to go for it, the amount you need to save depends on personal factors such as how much retirement savings you already have, and how old you are.
A 30-year-old aiming for a pension pot of $850,000 by age 55 would need to save nearly $1,500 per month, assuming an investment return of 5 per cent a year after charges.
If that sounds a tall order, it gets exponentially harder as you get older. If you don’t start saving until age 40, you would have to save nearly $3,300 a month to hit your target. That’s nearly $40,000 a year.
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The amount you need to save to build a decent pension income comes as a shock to many. The task has been made far more daunting by today’s low interest rates, which means you won’t generate as much income from your savings.
Pensions are complex, especially for internationally mobile expats, so you may need to take specialist advice on your options specific to your home country.
You could back this with a portfolio of investment funds that matches your attitude to risk and investment goals,. “Fund managers such as Goldman Sachs, JP Morgan,Zurich and Skandia Investment Group all offer managed investment portfolios tailored to the investor’s personal needs.”
Such a fund gives a “boost to your chances of getting a steady, risk-managed return.
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