UAE Expats lack Retirement Planning Skills- Few Tips to Plan Yours

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UAE Expats lacks Retirement Planning, Here are Some Tips to Plan Yours
The latest HSBC survey has revealed that the UAE Expats lacks Retirement Planning. Here are some tips to plan yours. Photo-Alex E Proimos/Flickr

With life expectancy still on the increase, the need to save and plan for retirement is becoming ever more critical. However, HSBC’s latest report reveals that UAE residents are dangerously unprepared for their retirement, with 89% unable to describe their current savings ‘more than adequate’ for the future and more than half admitting that they fear financial hardship during their retirement.

Key Highlights from survey of UAE residents:

– Nearly half (46%) of UAE residents are unable to save due to high cost of living
– An overwhelming 57% of UAE residents expect cash savings to be their most important source after retirement
– UAE respondents on average expect their retirement to last 15 years, while their savings for retirement will only last them 9 years on average
– One of the reasons for not saving for retirement – ‘too far away to worry about’
– Entrepreneurial aspiration – 51% of UAE residents hopes to start a business during their retirement
– Lack of pension schemes for expatriates and understanding of retirement savings plan cited as reasons for not saving for retirement

HSBC’s annual global study ‘The Future of Retirement: A New Reality‘ surveyed 15,000 consumers in 15 markets and more than one thousand people in the UAE, revealed that nearly half (46%) of residents are still being held back from saving due to their inability to deal with the day to day costs of living in the country. Other reasons cited range from the lack of pension schemes for non-Emiratis to a lack of understanding of savings and investments.

Many also attribute their lack of savings to the fact that retirement is ‘too far away to worry about’ – a perception that explains why the UAE is the joint highest globally in putting off saving for retirement, with people beginning to save at an average age of thirty. This is in stark contrast with countries such as UK and US, where people begin saving in their mid-twenties. Worryingly, UAE residents also believe that they can put off their savings as late as the age of 37 and still expect to maintain the same standard of living they currently enjoy.

People in the UAE are also being severely impacted by ‘life events’, the term used to describe moments in each person’s life where a significant amount of money needs to be spent or is no longer available as income. On a global level, the ‘life events’ that have impacted people the most are uncontrollable factors such as the recession and losing their job, whereas in the UAE it is buying a home (43%) and paying for children’s education (34%), both factors that can be controlled through careful planning. Unfortunately, two thirds of people impacted at some point in their life say they are still suffering from it to this day.

Rick Crossman, Head of Retail Banking & Wealth Management, United Arab Emirates, HSBC Bank Middle East Limited, said: “It is natural to prioritise immediate needs and wants above longer term financial health, but these ‘savings gaps’ that occur due to a lack of financial preparation, can equate to serious holes in people’s retirement savings in the long run, once interest and investment growth are taken into account.”

When it comes to aspirations regarding retirement, most respondents want to spend more time with friends and family (58%), a result that is similar in findings across the globe. UAE residents tend to have a much bigger appetite for entrepreneurial activity in later years, as the second biggest aspiration for people in the UAE during retirement is to start a business, with more than half (51%) expressing the desire, compared to just 7% in the UK.

UAE residents also rely heavily on cash savings in their retirement rather than diversified savings, with 57% expecting cash savings to be their most important source of income at that stage in their life. This trend towards cash also leaves the retirement pot vulnerable, as almost one third of respondents (28%) admit to dipping into their retirement cash savings when needed and 36% admit to taking from their general savings. More people would prefer to sell
their valuables (24%) rather than compromise their lifestyle by moving into a smaller house (18%).

The findings are described by experts at HSBC as a “time bomb” which will leave millions of people facing a drastically reduced standard of living in later life, a sentiment that is reaffirmed by the fact that UAE respondents on average expect their retirement to last 15 years, while their savings for retirement will only last them nine years on average.

Gifford Nakajima, Regional Head of Wealth Development, HSBC Bank Middle East Limited, said, “People must realise that just a year or two without saving can have a significant impact on their future income in retirement. Having a financial plan and just saving something, however small to start with, earlier can make a big difference to retirement income in the long run. With life expectancy increasing, people need to be aware how long their money will have to last, so that they can take steps to avoid any shortfall. Developing a financial plan with a professional adviser can help ensure that all retirement needs are identified, gaps avoided, and eventualities covered. When the financial crisis first hit, people expected the storm would pass, but today’s findings reveal much darker clouds on the horizon for those who fail to plan ahead. Even in parts of the world that haven’t been through a recession, global economic uncertainty is taking its toll and no one can take a comfortable retirement for granted.”

While the findings do not bode well for the future, there were encouraging results for respondents that have taken the initiative to get professional financial advice. Men who use professional advice typically have about 50% more in retirement savings than those who have not used such advice, while men that undertake either formal or informal planning in general have typically about twice the retirement savings of those who have not planned at all.

Disappointingly though, 93% of respondents do not plan their savings with an advisor, with almost half (44%) claiming to use their own approximations or thoughts to make savings, compared with less than a fifth of people in the UK (18%) who would do the same.

What can you do about your Retirement Planning?

According to HSBC Global Wealth Management, here’s what you need to do:

– Get real about your retirement needs

To recognise the costs of retirement – ex: health, travel, long-term care, etc – and make a realistic assessment of how much money they will need to live on in retirement.

– Put your savings priorities in order

Households need to work out a realistic budget and make sure that long-term financial planning, including the need to save for retirement, isn’t overlooked against what might seem like more pressing financial needs. Ring-fencing even a small amount of monthly income towards retirement planning can help to make a major difference in the future.

Be aware of how major life events affect saving for retirement

Households need to ensure that they have access to some emergency savings & investments as well as appropriate insurance to deal with periods of unemployment and long-term illness which may stop them working. In the absence of this ‘contingency’ fund, many households may be required to raid their long-term savings which were intended for retirement.

– Plan for the future

Develop an informal financial plan, for example writing a ‘to do’ list or using online financial planning tools, is a good starting point and a valuable stepping stone. Ideally, a detailed written plan should be made which has to be reviewed regularly, with input from professional financial advisers, in order to maximise the benefits of financial planning.

– Use professional advice to improve your savings position

Among the survey respondents, those who use professional financial advice when planning for their retirement have the greatest levels of retirement and other savings. Therefore, develop a financial plan with a professional financial adviser who can help to ensure that all retirement needs are identified and that comprehensive financial plans are put in place.


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