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.

About the Author Amit

Amit is an Independent Financial Advisor, based in Dubai since 1997. He is part of the prestigious ‘Million Dollar Round Table’ (MDRT), which is an elite club of the best financial advisors worldwide. He has authored the ‘6-Step Financial Success Guide’, and the book ‘Creating, Preserving, Distributing Wealth’. He helps business owners and professionals ‘Create A Second Income’ through investments.

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