7 Tips for Retirement Planning in UAE

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Retirement is a major transition in one’s life and requires proper planning. While a pension plan from the hitherto employer is an option, one should also opt for securing a retirement plan on their own. Planning retirement early while working is vital if you don’t wish to alter your lifestyle after work drastically. 

While starting investing early in life is the best way to spruce up your retirement planning, it is never too late to start making investments. Answering a few simple questions like if you have a secure home and whether you have marked the age by which you plan to retire can simplify the process of creating a retirement plan. 

With the help of such a plan, you will be able to take the steps to bring your ambition within reach, whether it’s in the form of purchasing a property or establishing a dependable source of income (pension plan). Read further to find out more about how you should save for retirement and what is the right time to begin preparing for retirement. 

Know the Answers to Some Questions

Before you start to set up your pension plan for your retirement, make sure you have visualised the kind of lifestyle you wish to have after retiring. For this, you can start by asking questions like -

  • Are you planning to retire in the UAE or any other country?
  • What is the right age for retirement?
  • What kind of lifestyle do you plan to live post-retirement?
  • What would be the monthly expenses then?
  • Do you have your own house to live in after retirement?

You can also utilise a retirement pension calculator to compute the basic daily expenses. The calculator offers simple calculations that factor in the inflation rate and even helps in analysing your monthly expenditure after retirement (as per your current requirements and income). 

Investing for Retirement: How to Do It?

Setting away a percentage of your salary each month for investment is the most important step in building retirement savings. After all, your money will not buy the same products and facilities in the future as it does in the present due to inflation and the current low bank interest rates. 

Individuals preparing for retirement in the UAE have a wide range of Investment options in UAE at their disposal. Each asset class has its advantages and hazards, whether you opt for stocks, mutual funds, systematic investment plans (SIPs), or property investments.

Currently, expatriates don’t qualify for pension plans in the UAE. However, several corporations have a business retirement account that serves in a similar way concerning employee contributions. 

Things to Consider When Planning Your Retirement in UAE

When you plan for your retirement, make sure that your plans are flexible. While investing in a pension plan is crucial, it is equally essential to not remain stuck to it. One should aim to diversify their instruments and include changes in the plans as and when required. 

With those key concepts in mind, let’s have a look at some tips that you can follow while planning your retirement - 

Start Saving for Retirement as Early as Possible

If you start saving and investing while working, you can get maximum returns on investment benefits with time. To start saving early, it is advisable to have a retirement goal sorted before you start planning. The following questions can help you plan the retirement pension plan easily - 

  • At which age do you plan to retire?
  • What assets do you possess?
  • The income you need after you retire
  • The monetary gap that needs to be filled

Note that an individual’s priorities are different at different ages even as they start retirement pension planning. For instance, one could think of repaying the mortgage for their home early on that they plan to live in after retirement. 

Stay Financially Secure

When making retirement plans, financial stability is essential. A good place to start would be to set aside 10% to 20% of your monthly take-home salary to establish stable funds for managing your money after retirement. 

There are individuals who may work until they are at least 70 years old, while some retire in their mid-50s. Additionally, throughout a person's working career, their income can vary significantly. Moreover, the nature of work has altered considerably along with the global economy and the changes brought due to the pandemic. 

For this reason, it is recommended to calculate your goals depending on your lifestyle requirements after retirement, which can be estimated considering the current expenses in the frame of the total number of years before retirement.

The financial experts have come up with steps for how to set up a pension plan in the UAE. The steps are discussed below -

  • Evaluate the lifestyle that you want during your retirement (with the assumption that your children are independent and all the loans have been settled) 
  • Figure out what annual income you would need if you retire today
  • Include the inflation rate in your expenses
  • Decide the amount that you would withdraw from your retirement fund 

Other than these factors, even calculating the cost of living in the retirement location of choice is crucial when making a pension plan for retirement. 

Take Savings for the Retirement as an Expense

After paying their bills, people often start saving for their retirement. As a consequence, there might not be enough money left over to save aside, and the choice is then put off until after another paycheck. 

However, if there is an excess of delays, you would not be able to create a pension plan at all. On the other hand, by saving for retirement first, you create a path to the future you desire. You can, thus, get closer to your retirement goals by adopting a mindset of paying yourself first.

Create an Assorted Investment Portfolio

Besides creating a pension plan, you should also consider creating a diversified portfolio of assets. You can lower your risk by diversifying the investments in your retirement account. Diversification ensures that even if one investment fails, all others will continue to function favourably. 

While investing always carries some risk, one can still build adequate portfolio funds by building a diverse investing strategy. Some key investment alternatives in the country include gold, government bonds, and even real estate. Other than that, some of the best retirement investment plans are -

  • Fixed deposits
  • Savings account
  • Equities like Systematic Investment Planning (SIP)
  • Debt investments
  • Offshore and onshore investment schemes
  • Real estate investment

While some investment options will perform better than others, the rebalancing due to diversification can undoubtedly yield benefits. You can start by making investments in conventional asset groups like bonds and stocks before going for the rebalance. 

It's essential to regularly assess your portfolio to determine how each investment compares to the projected return. Moreover, it is a good exercise to assess your spending each month to see how much you could have saved and where you spent your money. Similarly, you should consider questions like how much money did you save, and where can you use it?

Within the portfolio, you should also purchase a comprehensive health insurance plan to get cover for unexpected health conditions and save your finances from getting exhausted in such emergencies. 

A balanced diversified investment portfolio, for your reference, may be constituted in the following way -

  • 30% domestic equity
  • 23% absolute returns
  • 20% foreign equity
  • 9% fixed income
  • 7% short-term investment
  • 6% private equity
  • 5% real assets

Keep the Retirement Pension Plan Flexible

The process of retirement planning is continuous and may require modification along the way. Your retirement planning techniques should alter as you age, just as your circumstances and preferences do. 

You can, for instance, have a volatile (yet high gain potential) investment portfolio when you are in your 20s and 30s as you will have greater chances to make up for any possible revenue losses. On the other hand, you may want to concentrate on capital appreciation as you approach retirement and think about safer types of investments with low prospects of losing your funds.

Consider Taking Advice from Financial Experts

You can also seek investment advice from financial experts if you don’t have sufficient information regarding how to set up a pension plan in the UAE. An expert can give you better advice based on the wide economic trends, different types of assets, and investment options that are in line with your retirement goals. 

Take the Dependent Individuals into Account

You should also think about your dependents, such as your partner or other family members, when setting up your pension plan in the UAE. One can consider getting a plan for the dependents that will cover their daily requirements in the event of a serious accident, life-threatening illness, or untimely death of the insured individual. 

The plans available today for the same offer options for both investing and insurance. To maximise financial benefit, however, several planners advise keeping the two separate  although some believe that a joint plan can fit their objectives just as well.

Ultimately, it should be remembered that retirement does not mean ceasing work or making money. It is more important to have the financial freedom to follow a selected career path if you wish to maintain your mental acuity and lead a fulfilling life. While developing a pension plan is the foundation for the same, it is equally essential to be fit and active psychologically to be capable of appreciating the post-retirement period.

Key Takeaways

  • To avoid lifestyle alterations during the retirement phase, it is essential to start setting up your pension plan early. 
  • When you plan your investments early, there is a possibility of earning a higher return on investments. These returns can serve as a dependable source of income later. 
  • When planning your retirement, you should ask yourself questions such as the country in which you plan to retire, the right age to retire, the monthly expenses you might have then, and the type of lifestyle you wish for. 
  • To set up your pension plan, you should save a certain portion of your salary for investment every month. However, when computing the retirement amount, make sure to consider factors like inflation and bank rates as well. 
  • While ex-pats are not currently eligible for developing a pension plan in the UAE, their employers can create their corporate retirement account that synchronises with the employee contribution funds. 
  • When planning to invest in your pension plan, you should ideally start it way before retirement to endure the market financial risks better. However, as you approach your retirement, you should look for low-risk options. 
  • Save about 10 to 20% of your monthly salary to create stable funds for your retirement. 
  • The planned retirement age and the current income vary for individuals. Thus, one can compute their retirement goal using a pension plan calculator in the UAE. 
  • Instead of saving for the pension plan after incurring all the expenses, you should first put away a portion of your retirement fund. 
  • Besides saving a portion of your salary for your pension plan, you should also develop a diversified investment portfolio that contains real estate investments, fixed deposits, SIPs, savings accounts, offshore and onshore investment programs, and debt investments. 
  • If you are still confused about how to begin investing, you can seek financial advice from seasoned professionals for better suggestions based on wide economic trends, investment portfolios, and the best investment options available.
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