Definition of a plan is key to achieving retirement goals

Last week, I wrote about compound interest and the fate of Credit Card Kelly. This week let's look at another reality – a million bucks isn’t what it used to be.

Last week, I wrote about compound interest and the fate of Credit Card Kelly. This week, we'll be looking at another reality – a million bucks isn't what it used to be.

You know it, I know it, and millionaires themselves, especially, know it. In a recent UBS survey, well-heeled investors said they couldn’t actually relax about their retirement savings until they hit the US$5 million mark.

That’s four additional millions to the magical million-dollar number. The average retirement account balance for pre-retirees (55 years and older) has nearly doubled since the depths of the economic downturn, but it still sits at just $255,000. According to UBS, they have a long way to go.

In what might be one of the most sobering assessments of America’s retirement crisis this year, Jeff Summer of The New York Times threw a cold bucket of water on anyone who still thinks $1m is all it takes to retire well.

He said: "Inflation isn't the only thing that's whittled down the $1m. The topsy-turvy world of today's financial markets – particularly the still ultra-low interest rates in the bond market – is upending what many people thought they understood about how to pay for life after work."

For many people close to retirement, the problem is acute. The reality is that they will have to work longer or make subsequent plans for their retirement goals. Luckily, for generations to come, there is still time. What does all of this mean for people living in the UAE?

The problem for residents of the UAE is that we live in a consumerist culture. When people spend just like Credit Card Kelly, they fail to recognise that they need to sit down and save cash for life's luxuries and their futures. Instead, they rely on their credit cards and live beyond their means.

If you genuinely want to take action and plan well for your retirement, you’re probably wondering what the first step is.

A few weeks ago, I wrote about the attitude of gratitude and the relationship to our wealth-making abilities living in the UAE.

We are among the lucky ones to have the benefits of tax-free salaries and compounding growth on our savings in a tax-free environment.

To put a dollar figure on these benefits, all you have to do, if you are an expat, is Google the tax threshold in your home country and calculate the tax you would be paying on your current wage. You would be surprised at just how much tax is taken from your income regardless of your earnings. If you want to take it a step further, do a full income and expenditure table for both countries, and look at the dollar benefits of being an expatriate living in the UAE.

Once you have done this, you’ll be truly motivated to save that portion of your wage and kick-start your retirement savings if you haven’t already started on them. I have done this calculation and am living proof that it is a great motivator.

How much you will need for retirement depends on your personal circumstances. Retirement savings are unique for everyone, depending on their income and lifestyle. Knowing your own retirement number is one of the most important pieces of financial advice, but it is decidedly difficult to calculate.

How you save and spend your income largely hinges on your values and goals. Not only do you have to take into consideration your age, risk tolerance, healthcare needs, tax bracket and rate of expected investment growth.

But you also have to constantly adjust your goals as kids come into your life and as your parents get older and possibly even become dependent on you.

You may have once been an expatriate who planned on retiring in Sri Lanka and watching the sun set on the beach. But now you realise that being close to your parents is what it’s all about.

The one thing that I have learnt by doing my numbers is that I want to own my own home when I retire.

What that means for me is that I am realistic in my expectations on what I can afford to buy, and I am not relying on rapid inflation in the housing sector to create my entire wealth. To own a home is part of my plan, but not the whole plan. I am not planning to sell this property to live off the profits.

Defining your own plan is a crucial step toward achieving your retirement goals. You probably won’t have to hit that number down to the penny, but when you get past that million-dollar mark, you’ll know that you passed it with tax you could have paid. I am sure you’ll feel all the better for it.

Janelle Malone is a wealth commentator, writer and author. You can read her blog at www.womenmoneyandstyle.com