The UAE is the home of thousands of expatriates. And for the vast majority of them, planning for retirement differs from what the one in the United States. There’s no pension plan for the state for expats, no company-sponsored 401(k)-style scheme, as well as there’s no automatic safety net that is available until age sixty or 65. If you’re working and living in the UAE retirement, it’s mostly in your control. It can be a bit intimidating, but it means that you are in complete control over the way you build your retirement nest egg. Here’s how to go about it.
Understand What You’re Working With
The majority of UAE residents depend on three possible source of income for retirement such as individual savings and investments as well as gratuities at the end of service, as well as any retirement or pension accounts which they’ve left behind within their country of origin. Emirati residents can access a state-run pension scheme via the General Pension and Social Security Authority (GPSSA) however this isn’t the case for the expatriate population, which is the largest portion of the people.
This means that the responsibility of saving and investing to build your wealth to the next generation is entirely yours. The sooner you realize this and start preparing to save, the more time your money will have to increase.
Start With a Realistic Number
Before deciding where to invest your money, determine the amount you’ll need. A general rule of thumb is that you’ll require 70-80% of the current annual income to cover the year of retirement. However, this will vary based on your the type of lifestyle you’re planning to live, whether you want retiring in the UAE or relocate elsewhere, and the cost of healthcare. Many expats opt to retire in low-cost countries that can dramatically decrease the amount they need It’s important to think ahead about where you envision yourself in the long run.
Once you’ve got a rough number, you can determine how much you’ll must save each month by incorporating anticipated returns on investments and the length of time to retire.
Use Your End-of-Service Gratuity Wisely
One distinctive characteristic when working within The UAE is the end-of-service bonus which is a lump sum that is given by your employer, based on your time of service as well as the final salary. Although it could be a substantial increase to your retirement savings however, it shouldn’t be used as the entirety of your retirement plan. Gratuity payouts are low in comparison to the amount people require to live the full retirement age, and the effects of job changes, or early departures could reduce the amount dramatically. Consider it an additional saving contribution but not your base.
Take Advantage of Investment Accounts
There isn’t an auto retirement savings account available, UAE residents need to be proactive in creating one. There are a variety of options to choose from:
- Accounts with international brokers that let you invest in stocks from around the world ETFs, bonds and stocks
- offshore investment platform made for expats however, they often have more expensive fees, so make sure you take note of the fine print
- Real property investment is a popular investment option that many UAE residents make use of due to the property market’s accessibility
- Employer-sponsored savings programs which some of the largest firms are now offering as an alternative to traditional gratuity system.
Diversification is more important than ever. With no government pension to draw on spread your portfolio across different asset classes and geographic regions can help reduce the risk.
Don’t Forget Home-Country Pensions
If you’ve had a job in other countries prior to moving to the UAE there’s a chance that you have pension benefits that remain unclaimed. Find out if you are able to continue to contribute to these pension plans via the internet and transfer them into an account that consolidates them or simply let them expand. It’s easy to forget about old pension funds, so make the habit of checking each year.
Build an Emergency Fund First
Prior to investing your money for retirement Make sure you have at least three to six months of expenses for living saved in a readily accessible account. The residency in the United Arab Emirates is linked to work for the majority of expats, and losing employment can result in an earlier time frame for settling finances compared to countries with more social security nets. A savings account for emergencies protects your investments over time from being taken out of your savings too early in the event of a downturn.
Automate and Review Regularly
Once you have a strategy to follow, you can automate your contribution so that saving becomes a routine rather than a last-minute thought. Create reminders on your calendar to look over your portfolio, and adjust your contribution as your income increases, and revisit your retirement savings every few years as your objectives and needs alter.
Consider Professional Advice
Due to the complexity of taxation across borders and currency risk as well as various financial regulations, a majority of UAE residents are better off speaking with a certified independent financial advisor who is familiar with the international environment. Find advisors who charge fees instead of commission-based ones in order to keep out conflicts of conflicts of interest.
Final Thoughts
Planning for retirement in the UAE will require more effort than other countries that have built-in pension systems. However, the tax-free income climate provides a significant benefit in that the more you earn will go directly to your future. With a clearly defined savings goal and a diversification of investment strategy and a steady contribution schedule, UAE residents can build an investment plan for retirement that is exactly as solid or even stronger as a traditional pension.
