3 days ago
A comfortable retirement doesn't just happen to you
It may sound like a long way off for some, but retirement is something we all need to think about, especially if you are planning on doing it early. While living in the UAE has multiple benefits, it is still developing its pension provisions and retirement offerings for residents.
Mike Coady, CEO of Skybound Wealth and long-time UAE-based adviser to global expats, puts it bluntly: 'There's no automatic pension scheme for most expatriates. No safety net. No monthly cheque arriving once you've clocked out of your career. That means your financial future depends entirely on you, and how early and wisely you start planning. If you want security later, you need to build it today.'
While new government-backed schemes and changes to retirement planning have been announced in recent years, there is still a strong need for residents to put in place their own retirement savings plan. Most private companies offer an End of Service Gratuity (EOSG), a lump sum payout based on years worked and last basic salary. But this isn't considered enough money to comfortably retire on. So what can you do?
Start saving, and start now
One of the biggest mistakes is delaying the start of retirement planning. 'Many people view it as a distant goal and assume they can think about it later,' said Raji Kaippallil, the founder of financewithRaji. 'But the earlier you start saving and investing, the less you need to set aside each month - and the easier it becomes to reach your target, thanks to the power of compounding.'
Her example hammers home the power of starting early. If you begin investing just Dh1,500 per month at age 25, assuming an 8% annual return, your investment pot could grow to around Dh2 million by age 55. However, if you wait until age 35 to start, you'd need to invest about Dh4,000 per month to reach the same Dh2 million by 55. Waiting even longer until age 45 means you'd have to save roughly Dh12,000 per month to hit that target.
How much should you be saving?
The figures above were just an example. Mike Coady says use the following as minimum amounts, based on an investment growth rate of 7% a year. At age 30: Save 15–20% of your income monthly. Age 40: Save 25–35% of income, Age 50+: You may need to save 40%+ or plan to retire later.
It can be tricky trying to predict how much you will need each month to live on once you retire. Living costs, healthcare and other expenses are increasing all the time. But let's say you want AED 20,000 a month in retirement income, starting at 60. You'll need to build a pot of AED 4 to 5 million. And that means AED 10,000 a month in savings over the next 20 years (at 7% growth rate). If you have a 30-year savings time frame, then you need to save AED 6,000 a month to hit that target.
Financial planner Michele Carby suggested another interesting idea. 'If you have moved from a taxable jurisdiction, the bare minimum you should be putting aside is the % that you were previously used to paying in tax as this goes directly towards looking after you in the future. As a rule of thumb at least 20% of your monthly salary should be considered as an effective starting point.'
Where to save
There is no one-size-fits-all answer on where to save for retirement. Expats are often advised to use international platforms, and hold their assets in tax-efficient, flexible investment accounts. Given the longer time frame, investing in equities is appropriate, and there are many equity funds to choose from, such as low-cost Exchange Traded Funds (ETFs). And make sure you diversify globally across geographies, asset classes, and currencies.
Many expats already have a pension plan in place before they moved to the UAE and may continue contributing to it, especially if they plan to retire back home. However, seven out of 10 residents want to retire in the UAE, according to a survey by YouGov commissioned by Zurich International Life. 'A key advantage is that the UAE doesn't impose income tax, so if you remain a UAE resident during retirement, your pension withdrawals wouldn't be taxed locally,' added Kaippallil.
Mistakes
Saving for retirement early makes so much sense, but the number who are doing it is worryingly low. Why? Carby, managing partner at Holborn Assets, said: 'Most commonly, expats will fall into bad spending habits given how attractive Dubai's entertainment lifestyle is. Before you realise it you are spending over Dh200 a weekend on a brunch. Even if half of this went into your retirement bucket that would make a significant impact. Unfortunately, not a lot of people consider this.'
Coady says a big mistake among people is confusing the end-of-service payout with a retirement plan, when in reality it is rarely more than a few months' salary. 'Another mistake I see often is the 'expat illusion' - thinking the high salary means you're building wealth. The truth? Many high earners leave the region with little to show for it, while disciplined savers with modest salaries leave as millionaires.' Make sure you are the latter.
