Build up funds now and retire in blissful comfort

What would your retirement look like without the beauty of compound interest to boost your finances?

Illustration by Gary Clement for The National
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Imagine waking up each morning in your beautiful home, marvelling at the wonder that is life - I see some flowers are blooming just when I'd assumed they'd be hunkering down for the hot and dusty summer ahead. Imagine not having to jump into a shower, then work clothes and have breakfast on the hoof as you rush to hit the road before school bells ring and herald an ensuing slew of cars being revved up and vying for the already minimal distance between bumpers.
Imagine taking in the day in mindful, relaxed, peace and calm. What would you do? How would each morning play out? What about the rest of the day? My routine would include celebrating each day with something physical - yoga for example - and eating healthy, yummy food while looking out at whatever is growing, tuning in to the sounds of my surroundings.
It would involve sitting, satiated, and dipping into work that I want to do that I find stimulating and interesting, and that pays bonus money that's not needed to cover living expenses. Because life's expenses would be covered through passive earnings.
This is what I call retirement.
Deciding how to spend the day. Deciding what work to take on and when. Deciding to do what I want, when I want.
This is how to achieve it: generating passive income that covers life's expenses, with the option of taking on some entrepreneurial or ad hoc work that can be slotted into your lifestyle.
The tipping point is when you make more money passively, from your investments, than you spend on your life.
Most people think about the idea of living like this for a few seconds I'd guess, then push it to the back of their minds as they become consumed with the latest "must do" deliverable.
The big thing to concentrate on is figuring out ways to save more of your salary, not how to make more money. More specifically, it boils down to the proportion of your salary that you save.
I can't say it often enough: your spending rate is key. Every Dh1 you set aside and keep means that you have more for you at the end of each month. And if you keep it, it will permanently decrease the amount of money you will need to set aside for the rest of your life.
Is this sinking in? You're building up a larger investment nest-egg with every Dh1 you keep. This gives you more passive lifetime income. The more you save, the sooner your passive income builds up to cover your life expenses, the sooner you get to do what you want, when you want.
Let me demonstrate: imagine a couple, both work, one brings in Dh15,000 a month, the other brings in Dh25,000. That's a combined income of Dh480,000 a year.
Now assume they have decided they want more from life than working full time.
They have plans and understand that they need to kick in with major savings commitments to give them financial independence and the freedom to choose their best life.
They decide to live on 50 per cent of their earnings. At Dh240,000 this is very doable. It means they won't drive fancy cars or live in a big villa, but financial freedom is more important to them so they are going to make it happen and live within their budget.
Assume that their savings earn 5 per cent return. This could be via saving in index funds, for example.
In 15 years this would become an eye-watering Dh5.3 million.
Don't believe me? Then work out the sum yourself using this online calculator:
The assumption here is that interest is compounded yearly and added at the end of each year, and that the starting balance is zero.
You can see that the magic tipping point comes in year 14-15, when the interest generated overtakes the couple's annual expenses.
This means that they can afford to "retire".
Not only that, they have also honed their skill of wanting what they have and living within their means, which makes them a happy couple indeed.
If they choose to stop working and never think of earning again then they could live off the 4 per cent "safe withdrawal rate" of interest in their Dh5.3m - a nice Dh212,700 each year which, in theory, doesn't eat away at their lump sum.
If they want a bit more of a cushion to live off of post-retirement, then they could look to work a bit longer, or live off less. You get the picture.
You too can do this. How long have you been working for? What do you have to show for it? It's never too late to start saving - and the more you save, the less you have to work in future. Bingo.
Instead of dismissing this, figure out ways of making it happen. You'll be better off for it.
Nima Abu Wardeh is the founder of the personal finance website You can contact her at
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