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How to plan your retirement

Whether you want to work part-time or simply live off the fat of the land you’ve tended during your working years, it’s essential to have a plan in place

The trouble with retirement is that you never get a day off ~ Abe Lemons

Retirement as we know it is changing. The pre-conceived ideas that we once held about working in the same career until retirement age, and then reaching a cliff edge where we stop working completely, is a thing of the past.

People no longer see retirement as something that happens on one day, but view it more as a transition that happens gradually over a period of time.

People now view ‘retirement’ as a new chapter in their life. We look forward to our 50s and 60s as a time when we can afford to try something new; whether that’s start a new hobby, change careers or start a business.

With an increase in life expectancy, and people living healthier lives for longer, there is more time to enjoy a ‘second life’ and the concept of doing something different before stopping work is an increasing trend in the UAE and globally.

New research we carried out in the UAE shows the extent to which working life and retirement is becoming blurred. A staggering three out of four (75 per cent) people living in the UAE plan to continue working in retirement, either part-time or in a different job.

The trouble with retirement is that you never get a day off ~ Abe Lemons

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Many may feel too young to stop working and want to keep going to maintain interaction, with 41 per cent saying they will continue working for social reasons. Some also plan to continue working part-time to make ends meet, with 35 per cent saying they will work for financial reasons.

Of those who plan to continue to work, an astounding 77 per cent intend to be self-employed. Perhaps people in the region see a future in consultancy or contracting, or perhaps they are budding entrepreneurs with ambitious business ideas.

As needs, demands and options change, it is more critical than ever that those thinking about how to apply their savings to meet their future income needs seek financial advice.

The value of advice is not necessarily purely financial, but it can help establish a plan that can ensure whatever vision of a redefined retirement a person has, they have the best chance of attaining it.

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Many people working in the UAE will be familiar with the end of service gratuity scheme; which plans to pay out a lump sum when someone leaves the company, either for a new job or to retire. While 77 per cent of people in the UAE expect to receive a gratuity, the amount of money they expect to receive varies greatly, with 24 per cent expecting over $20,000, and 68 per cent of people expecting their gratuity to be below $20,000 with an average payment of $11,500.

In theory, this lump sum can help towards funding a person’s retirement. But, with people in the region expecting retirement to last on average 20 years, that’s a long time for a gratuity alone to last. Instead, the gratuity should form part of a person’s long-term financial plan, with adequate personal provisions being set aside to fund their long-term future.

Not having enough money to retire when you want to will be of equal concern for many people. Trying to foresee how much money might be needed to fund retirement is difficult, and any plan in place will need to be flexible and adapt. The earlier you can start to save the better; the longer you leave it the more you will have to save to make up for lost time.

As a general rule of thumb, a target rate of 70 per cent of working income could be a good place to start. An average earner might need to contribute between 8 and 10 per cent of earnings to have a realistic chance of replicating working life living standards if they were contributing between say age 22 and standard retirement age. For people who begin contributing later or who take career breaks, contribution levels might need to be in excess of 20 per cent.

With increasing life expectancy you might spend almost as long in your second life as your first, so make sure you plan for it. The investments you choose could determine whether or not you achieve your future ambitions. Don’t leave it to chance, get proper expert advice from both a financial adviser and an investment professional to ensure your investment portfolio is suitable and you stay on track to reach your financial goals.

This is a joint contribution from Mark Leale, Head of Quilter Cheviot Investment Management’s Dubai representative office and Paul Evans, Head of Region, Middle East & Africa, Old Mutual International.

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