Retirement

Retirement

Our research shows that as many as 85% of expats may not be saving for retirement – with a further 47% admitting that they aren’t saving appropriately.

Managing Partner, Chris Ball, suggests that, “This could be as a result of expats paying off debts or saving elsewhere – although often it’s down to individuals simply overlooking a stage of life that seems so far in the future. Whatever the reason, expats must view retirement planning and safeguarding their financial future as an integral aspect of making their wealth work for them long-term.

“Many people are used to having their retirement planning effectively handled ‘automatically’ through workplace pension schemes for example, and don’t realise that just isn’t the case in the Middle East.

“For a lot of younger people, pensions just aren’t exciting enough, the prospect of steady returns compounding for 25 years doesn’t motivate them to action.”

Average life expectancy for Australians is now over 80 years for both men and women. This means that if you retire at age 60, you’re looking at another couple of decades of living expenses.

A recent Bankrate.com survey asked millennials, classified as Americans ages 18 to 37, what the perfect time to retire would be. Their answer: 61 years old. But most have nothing saved.

According to the latest US Bureau of Labor Statistics data, which is based on 2016 figures, “older households” — defined as those run by someone 65 and older — spend an average of $45,756 per year, or roughly $3,800 a month. That’s about $1,000 less than the monthly average spent by all US households combined. With fewer mouths to feed and no work-related costs to worry about, you may have expected retirement expenses to be even lower. In some categories, spending does indeed decrease, even in surprising ones like food. In others areas, like health care, life becomes more expensive as you age. Some costs never go away, even when a home loan is fully paid. Housing continues to be retirees’ largest monthly expenditure, due to property taxes, insurance, utilities, repairs and maintenance and household supplies.

Why you can’t solely rely on social security

If you’re nearing retirement, you still have plenty of options surrounding the withdrawal or  liquidation of your pension. However, the long-term outlook in the UK isn’t positive, with final salary pensions in decline as employers struggle to deal with massive deficits in the schemes, leading the government to introduce a yet another new type of scheme, the Collective Defined Contribution (CDC) scheme. It was posited at the Pensions and Lifetime Savings Association’s annual conference (March 2019) that the retirement age in the UK would theoretically need to be increased to at least 70 by 2030 to meet a stable support ratio of active workers to retirees.

Long-term financing shortfalls are seen in the US also, where the US Social Security Administration projects that the Social Security trust will be depleted by 2034.

Many young people could be forgiven for seeing state pensions as Ponzi schemes. Certainly, future generations are likely to get a lot less money in their payouts if things stay on the current course. That means social security definitely won’t be enough for you to live on and may not even be enough to be a major factor in your budget planning.

Add to that many people approaching retirement may be finding that they face a deficit in their retirement budgets, perhaps due to having had more pressing financial obligations such as raising and schooling children, or a simple lack of awareness.

It’s clear within the next decade retirees are going to need other streams of income to sustain themselves during retirement, a sound financial goal in any case. These could come from any number of sources, including rental income from property, systematic investment plans (SIPs) in mutual funds, dividend plans, fixed deposits, and tailored retirement investments such as health insurance, Individual Retirement Accounts (IRAs), annuities, and the like. There are products which can be designed to evolve over time, as your circumstances or appetite for risk change. There are even products specifically for those who have already retired.

The good news is it’s never too late to start, or reassess, your retirement plan. Bill Gates once said, “Most people overestimate what they can do in one year and underestimate what they can do in ten years”. Retirement planning includes identifying sources of income, estimating expenses, implementing a savings program and managing assets. It needn’t be a daunting task, especially when guided by an expert financial advisor. Our team can help you with the process of determining realistic retirement income goals and the pragmatic actions and decisions necessary to achieve those goals.