Saving for retirement is one of those essential life tasks that many people delay in the belief that there's still plenty of time to prepare for the future.
A survey earlier this year found that almost half of all residents in the UAE often delayed preparing for their retirement until they had reached their late 40s and 50s.
The survey, by global consulting company Mercer, found that nearly 50 per cent of UAE expatriate employees have no plans to ensure an adequate standard of living after retirement or plan to work beyond the retirement age to ensure continued income.
Financial experts say this may put them at a disadvantage in terms of having a sizeable retirement fund, particularly considering compound interest. However, as the adage goes, “Better late than never”.
“It is often at this stage of life in which it dawns upon people that they have not made enough provision for their retirement years,” says Rupert Connor, partner at Abacus Financial Consultants.
“This is especially true in an expatriate environment, where many businesses and companies do not provide in-house pension schemes. Also, it might be the time when children are no longer dependent, which frees up disposable income.”
The Mercer study also found that there was a lack of financial awareness among respondents, with 61 per cent reporting no long-term savings at all and 43 per cent expecting their end-of-service gratuity payment to meet their long-term financial needs.
“They will be disadvantaged, but in most instances, it is not too late to make a difference. However, there will be a cost in delaying saving for retirement. There is definitely an impact of giving your money time and the positive effect of compound interest,” adds Mr Connor.
We spoke to three UAE residents who started investing late, but who are now in a comfortable financial position and have concrete plans for retirement.
Late to invest, but early to retire
Jens Winkelmann, 54, started investing at the age of 42 when he moved to the UAE and had substantial money to put aside every month. Until then, he had only invested in a property in Germany but had paid off the mortgage.
“When you are in university, land your first job, start a family and have kids, you are not left with much disposable income unless you decide to cut down on your quality of life,” says the senior executive who works in the process automation industry.
“We lived in Germany earlier and it wasn’t financially possible to save with children growing up. Coming to a tax-free environment in the UAE, I could save because there was more liquidity.”
The German initially consulted a financial adviser who encouraged him to invest in a term-based savings plan. However, after realising that such plans often involve a hefty fee, Mr Winkelmann decided to go down the "do-it-yourself" route. Attending a seminar by Andrew Hallam, a personal finance expert and author of Millionaire Teacher, in Abu Dhabi was also an eye-opener to the world of DIY investment.
Although Mr Winkelmann first started trading in stock exchange-traded funds, he added bond ETFs to his portfolio at the beginning of this year. Having a long-term investment horizon helped him to invest in stocks, which are traditionally considered a risky asset class.
"Considering my age, it is commonly recommended that my portfolio should have a 30 to 40 per cent allocation for bonds. I have a 70:30 weightage for stocks and bonds. Some people may consider this to be high risk appetite for my age," he tells The National.
In 2014, Mr Winkelmann also bought a villa in The Green Community DIP in Dubai. However, with the property’s value declining by 45 per cent, he decided to sell the house and downsize to a rented villa in Arabian Ranches 2 this year.
He recommends that if a person wants to become financially independent soon, they should save 50 per cent of their monthly income.
“Adjust your expenses, such as on vacations, car, house, so that you can live with 50 per cent of your income. I have downsized my house to save on rent and utility bills and also own two cars now, instead of three earlier,” he adds.
All these cost-saving measures have helped to bring forward his retirement by five years, when he turns 59.
“Mathematically, there will be an effect on your retirement savings if you start investing late, but it also depends on how you adjust your expenses. I believe one should save not just for retirement but for 30 years after you retire as well,” Mr Winkelmann adds.
After retiring, he aims to travel the world with his wife. “We aim to find a place which will be our final destination, whether it be in Thailand, Ecuador or Portugal.”
Sufficiently invested despite a late start
Sona Nambiar did not start investing seriously until she was over 40 years of age. Although she started working in 1988, she found it difficult to save because she was paying for her rent, food and other expenses.
"I had zero balance in my account. But when you are at the start of your career, investing is not a priority. When I moved up in my career, I started a recurring deposit scheme but spent that before I left India in 1991 to come to Bahrain. In 1992, I came to Dubai," Ms Nambiar tells The National.
The founder of Kimiyaa, an online content and design solutions start-up in Dubai, has been a single mother since 2003. This made her readjust her priorities and have easy access to cash to deal with any financial challenges. She has no credit cards or loans and doesn't believe in “keeping up with the Joneses”.
Ms Nambiar also follows a consultative approach at home so that her daughter understands how to manage her finances prudently.
In the past, the entrepreneur has been put off by how expats spoke about owning multiple properties in their home countries but complained that they lived frugally in the UAE with very little liquidity as they had huge loans to pay.
“They complained that their holidays were for opening, cleaning and closing homes they hardly stayed in. Or they spent time chasing and changing managers who handled the land back home and misappropriated funds,” she adds.
Ms Nambiar currently has a mixed basket of assets that includes one property, a few equities, bonds and fixed deposits.
“I am more risk averse due to my background in business journalism and having seen people bite off more than they can chew,” she says.
The Indian expat has never used the services of a financial consultant, although she used to consult her father because he ran a financial services business.
Ms Nambiar does not allocate a fixed amount for investment every month as she has been running a start-up since 2016, and the business requires cash injections to keep it going.
“I don’t see myself retiring as I enjoy my work as an entrepreneur. I think the quality of my retirement will be comfortable as I have different priorities in life. During the past six years, I have started travelling and learned to travel solo and value experiences more than assets,” she adds.
Living frugally to make up for lost time
Mahesh Butani, 60, cleared all his debts at the age of 33 and started saving and investing. However, at 40, he lost his job, moved back to India and was left with only a small percentage of his savings to live on.
“I soon picked up the pieces, returned to Abu Dhabi, lived frugally and saved more to make up for lost time. I also changed jobs to get a higher income,” Mr Butani adds.
The family also made cutbacks to save more money to make up for the lost savings time. “We drive a Kia instead of a Range Rover, live in a two-bedroom basic apartment instead of a sea-facing, high-rise three-bedroom apartment, and have limited socialising, visiting expensive restaurants and buying unnecessary gadgets. We have chosen intellectual pastimes and travel instead.”
Although the civil engineer planned to retire immediately after his daughter finished her education in the US, he has changed his plans and intends to stay in the UAE until his employment lasts, or he turns 65.
“I would like to stay here some more to increase the value of my investments. I am already comfortable because I will have income from rents and deposits and will not need to divest my stock holdings for a while,” says Mr Butani.
Although his investment targets have been met, he still invests 30 per cent of his monthly income. It’s mostly been DIY, but he has advisers for investments in equities, futures, forex and commodity trading.
The Indian expat has invested in bank fixed deposits, mutual funds, property, insurance-linked savings schemes, equities and gold.
“I can take substantial risks as I have saved sufficiently in property and risk-free assets such as fixed deposits. I mostly invest in equities and related instruments now,” he adds.
His retirement goals are to have sufficient inflation-adjusted income to last for the rest of his and his wife's lifetimes, and to leave a substantial inheritance for their daughter.
What to do if you start investing late?
Financial advisers recommend people initially create an income and expenditure spreadsheet.
“At what age is retirement anticipated and where will it be geographically? What does retirement look like? Try and have a feel for what income might be needed,” says Mr Connor.
He advises late investors to save more and spend less, be disciplined and stick to a budget.
“Try to manage costs, for example, if one can reduce costs by $500 [Dh1,836] per month, then this is the equivalent of $500 in growth on their investment per month,” he says.
Mr Connor also points out that several people are now working longer than before and this can make a big difference in having enough retirement income. “This is possible because of a combination of making extra contributions, not taking withdrawals and allowing the funds more time to grow.”