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Friday, January 20, 2023
The National - How much do you need to live a comfortable life during retirement?
تم إعداد هذا المنشور من قبل سنشري للاستشارات
One of the most important questions on the minds of many people is how much to save for retirement and how to achieve this goal.
“Everyone’s circumstances are different, depending on when you want to retire, where and what retirement looks like for you,” says George Howard, chartered financial planner at The Fry Group.
“If you have built up savings, pensions from other countries, gratuity payments at the end of service or rental income from properties, these should all be factored in.”
Pension income rarely sustains the lifestyles that employees and their families have grown accustomed to, according to Abdulmohsin Al Omran, founder and chief executive of The Family Office, a GCC wealth management company.
Unless retired employees have other sources of income, they will face financial difficulties and may be forced to make many compromises and sacrifices, he says.
An October survey of 2,312 people by financial services company Bankrate found that about 55 per cent of US adults felt their retirement savings were not where they need to be, with nearly 35 per cent saying they were “significantly behind” and another 20 per cent saying they were “somewhat behind” their goals.
Similarly, a 2020 survey by global consulting company Mercer found that almost half of all UAE residents often delayed preparing for their retirement until they had reached their late 40s and 50s.
It also found that about 45 per cent had no plans to ensure an adequate standard of living after they retire, or planned to work beyond their retirement age to ensure a steady income.
Decide on your monthly savings rate
As a rule of thumb, you should aim to save 20 per cent of your income towards your future. However, even if you start with a smaller amount and increase it as your income rises, that is better than doing nothing at all, Ms Howard says.
“Retirement planning can often be left until the later years as a consideration for many people when, in fact, it is important to start saving as soon as possible to give the best outcome in retirement,” she adds.
Questions to ask for retirement planning
When planning for your retirement, you should ask yourself a few questions, Mr Al Omran says.
Do I have any financial obligations or debt that I must repay during retirement?
Do I have dependents who require financial support?
What lifestyle do I want to ensure for myself and my family during retirement?
The answers to the above will determine the investment goals and the portfolio needed to support the financial needs of the retiree, he says.
Other factors to consider include expected expenses during retirement, time to retirement, desired retirement age, risk tolerance and the long-term effect of inflation on spending power during retirement, Mr Al Omran says.
How to calculate nest-egg value?
“This sum allows you to withdraw 4 per cent in your first year of retirement, and then keep withdrawing the same dollar amount adjusted for inflation every year going forward to prevent running through your savings early.”
Post-retirement financial planning requires a realistic mindset, a disciplined lifestyle and prioritisation of spending and savings to achieve the desired goal, Mr Al Omran says.
Where to invest?
The ideal approach to retirement planning is to start saving a portion of the salary at an early age, commit capital gradually to an investment portfolio and reinvest the returns to benefit from the magic of compounding, finance experts say.
In an inflationary environment, staying invested is extremely important to preserve purchasing power, Mr Al Omran says.
“A diversified investment strategy helps nurture wealth, preserve the lifestyle and transfer wealth to the next generation.”
Use an investment account that can be flexible to your changing needs, Ms Howard from The Fry Group says.
For example, if you lose your job, you can stop payments with no penalty, restart payments, add bonuses or lump sums, draw money out with no penalty if an unexpected emergency arises, she says.
If you go to a country where a different form of savings is more tax-efficient, your investments need to move easily with you, with no penalties, she adds.
“Always invest in a well-diversified portfolio of liquid assets, using different asset classes such as equities, bonds and commodities, using different geographical locations. Spend time thinking about the risk you are willing to take with your money,” Ms Howard says.Source: