Saving for retirement

Retirement Planning and the Rule of 72

Retirement planning and 30 somethings

It is reasonable to assume that most individuals in the UAE who are 30 somethings have never given a second thought to retirement planning. Most individuals who plan to retire at 65 think they have ample time to start saving for retirement since they are only in their 30’s. Others think that being expats in the UAE, they will move to another country and settle down there and then start saving.

But there is a high cost of waiting associated with reaching your financial goals, especially retirement planning.

The ‘Rule of 72’ and Retirement Planning

If you are in your 30’s it is high time you read about the ‘Rule of 72’. The ‘Rule of 72 states that if you divide 72 by the interest rate or the inflation rate, you can get the number of years in which your money or expenses will double.

Savings in the bank vs Investing

Take the UAE for example. The cost of living in the UAE increases by 4% every year and the interest you get on your money in the banks here is 2%.The problem is apparent, if you divide 72 by these numbers, you will find that your ‘Cost of living’ or ‘expenses’ will double every 18 years, and your money in the bank will double every 36 years.

The solution is obvious. The sooner you start your retirement planning by saving and investing money towards your own retirement expenses, the easier it will be as time goes on to achieve your retirement planning goal.

Note – Going by the calculation above, your money should be invested in a vehicle that gives you more returns than inflation in dollar terms in order to maintain its purchasing power.

Example calculation for a 30-year-old considering retirement planning

If you are 30-year-old, living in the UAE and have living expenses of USD 5,000 per month as of today, by the time you are 48 the cost of living will double to USD 10,000 per month going by the ‘Rule of 72’. By the time you are 66 and retired, the cost of living will be USD 20,000 per month. If you live to be 84, it will be USD 40,000 per month.

At the same time, your income will stop at 65 and your money will only double every 36 years. The graph below illustrates this example.

The next step – get started now

Contact a professional financial planner and get started as soon as possible. Time is money literally, when retirement planning is concerned.

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How to Plan For Retirement- Preparing for the Future
Saving for retirement

Pension Retirement Plans Dubai

How to Plan For Retirement- Preparing for the Future
How to Plan For Retirement-Enjoying the Fruits of your Retirement Plan

One of the realities of life is that, at some point, everyone has to stop working and retire. For some, this is a golden opportunity to enjoy their golden age and do things they couldn’t do while they were busy working and raising a family.

For others, however, having no pension retirement plan prepared can be a very scary prospect, with no more work and expenses continuing to increase. Even though work stops, the truth is that life doesn’t.

Factors to consider – Pension Retirement Plans

The most important factor in planning out your retirement income is to plan ahead- the sooner you start to plan, the better. When you are in the prime of your career where you are receiving a steady income, you should begin to put money aside to have a source of income when you retire.

This can be done by diversifying your sources of income – small investments that yields income will eventually add up when you retire to provide you with a comfortable living.  If you are frugal you may find that your retirement income is actually more than enough to live by.

Choosing Pension Retirement Plans

Pension retirement plans are very important in the retirement planing process and are viewed, wrongly by many, to be the sole means to achieve an appropriate sustainable income in retirement.

There are several ways to back-up your pension retirement plans and in doing so, it is feasible to have a more financial security.

  1. Begin Saving Now! The earlier a Pension retirement plans is looked into the better. It is much better to start one at twenty than it is at forty. The longer you save, the more you will receive when you retire.
  2. How much must I put in? The simple answer is as much as you can afford. However, it is worth bearing in mind additional forms of savings for retirement, such as investing in stocks and shares.

Managing our funds and having personal stability is definitely an essential matter for a number of us. When we spend so much time trying to earn money, its good to know that our income is working hard for us too.

Probably the most vital factor in our wealth management that requires necessary consideration is our Pension Retirement Plans. After a lifetime of non-stop work to earn income, we want to have the assurance that we can relax in our retirement with enough funds to take full advantage of it.

There are a number of pension schemes available to help us to do this. It is good idea to seek financial advice on  Pension Retirement Plans that are suited to our financial needs.

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How to plan for retirement
Financial Planning In Dubai, Saving for retirement

How to plan for retirement

How to plan for retirement

Lets face it, no matter who you are, what you do and how old you are right now, there is day when all of us will retire, or at least want to retire.

How to plan for retirement

For most people retirement means having financial independence and being able to make the choice of working or not working.

How to plan for retirement – Questions you need to ask yourself

  • Would you want to able to afford at least the same lifestyle you are living today?
  • Would be comfortable being dependent on your children or others for your monthly expenses at retirement or be financially independent?
  • Do you want to have the freedom to ‘Do what you want, when you want and how you want’ when your retire?

How to plan for retirement – When do you plan to retire?

When I meet people about financial planning one of the questions I ask is ‘When do you plan to retire?’. Most people have a blank look in their eyes, while others say between 45-50. Some say 60-65. The point is, there is no right or wrong answer about the right retirement age, it all depends on your own personal situation, wants and needs.

But, not planning for retirement is the most common mistake people make. Some procrastinate while others pretend that their game has no end. Others say that they have more important commitments like children’s education planning to look after before they can consider retirement planning. Like it or not, I tell them that they need to start thinking about retirement planning and the earlier the better.

How to plan for retirement – Where do you want to retire? and what do you see yourself doing?

When considering ‘How to plan for retirement‘, consider where you would want to retire. Answer the questions below to yourself in as much detail as possible. I cannot stress more on the importance of doing this.

Unless you have a detailed picture of your retirement years, you will keep wondering ‘How to plan for retirement‘.

  • Which country do you see yourself retiring in?
  • What do you see yourself doing during retirement?
  • Would like to travel around the world, visiting countries you haven’t seen?
  • Would you like to build your own dream house?
  • Would like to do any particular activity which is not possible right now?

How to plan for retirement – How many years after retirement should you plan for?

Based on your family health history and your own lifestyle choices, you can probably arrive at a number of how many years you would expect to live after retirement, and consequently the number of years you would need to plan for, to be financially independent after retirement.

If you expect to retire at 60, typically you would need to plan for 20-25 years after retirement.

How to plan for Retirement – Calculating the total amount you would need to have by retirement to live comfortably

This is a tough one, especially if you haven’t done the previous section correctly. Based on the questions answered earlier, you will now have a rough idea about how much you need on a monthly basis, to do all the activities mentioned above. If not, I can always help you arrive at this figure when we meet in person as I have a very comprehensive version of a retirement calculator in the form of an excel file.

But to begin with, start by thinking about your basic monthly expenses in today’s terms for maintaining the same lifestyle your are leading now. This should be fairly easy to calculate based on your current expenses. Multiply this number by twelve to get an annual figure. Then itemize the approximate annual expenses of all the other things you would like to do at retirement in today’s terms. Add all of the above and you will arrive at a number, which you can call ‘Total Annual Expense at Retirement in today’s terms’.

Then you have to factor in the effects of inflation and calculate the future value of the ‘Total Annual Expense at Retirement in today’s terms’ at the age of retirement. Then you need to calculate the total amount you would need in bank deposits to earn you the calculated future value in interest annually.

After all this is done, you need to back calculate the monthly amount you need to save in order to hit this number at retirement.

Feel free to leave your questions and comments below.

 

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