Majority of UAE expats failing to save for retirement, financial experts warn

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The vast majority of expatriates in the United Arab Emirates are failing to save enough money for their retirement, with many not putting anything away at all, financial experts said.

Hannah Greenwood, managing director at Finsbury Associates, told Al Arabiya English that most expats are simply relying on their end-of-service gratuity payment – often on its own not enough to fund retirement – and don’t make putting money away in a nest egg a priority.

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She said a recent study conducted by HSBC bank found that 75 percent of UAE residents are not saving anything for their retirement.

“Here in the UAE the majority don’t have access to a workplace savings plan and instead receive gratuity at the end of their service,” she said. “However, this gratuity payment is usually not enough to fund someone’s retirement.”

“For example, the maximum gratuity payment in the UAE is two years of basic salary and an employee would have to work with the same company for 26 years to receive the maximum amount,” she explained.

Save early

Unlike many other nations, the UAE has no mandatory workplace savings plan. Employees often fail to save on their own, instead adopting a “spending first and not saving” approach, Greenwood said.

“We can see that those that do have workplace savings have meant that people end up saving a lot more,” she added.

When deciding on what point in life is the best, Greenwood had a simple reply: The sooner the better.

Save early

“The earlier you can start saving with whatever you have available, the easier it is to achieve your future goals … The earlier you start saving, the easier it will be to achieve your financial goals, particularly when taking into account compound interest,” she said.

“For every 10 years you don’t save, the amount you need to save on a daily basis to reach the same goal will double.”

For example, if your goal was to reach a retirement pot of $1 million at 65, coincidentally also the UAE retirement age, at 20 years old you would have to save $16 a day, by 30 $32 a day, by 40 $64 a day, but at 50 it would be about $120 a day, Greenwood said.

A couple walks at Palm Jumeirah island against the backdrop of Marina Waterfront skyline in Dubai, United Arab Emirates, Saturday, Sept. 22, 2018. (AP Photo)
A couple walks at Palm Jumeirah island against the backdrop of Marina Waterfront skyline in Dubai, United Arab Emirates, Saturday, Sept. 22, 2018. (AP Photo)

Vijay Valehca, CIO, Century Financial, also agreed most UAE residents have not thought adequately enough about their retirement plans.

A survey conducted by the global consulting company Mercer in February 2020 found that almost half of all UAE residents are delaying preparing for their retirement until their late 40s and 50s.

It also found that about 45 percent of the population had no plans to ensure an adequate standard of living after they retire.

“This is because about 43 percent of the UAE population expect their end-of-service benefits to meet their long-term financial needs,” said Valehca. “People fail to understand that the current end-of-service benefits are far from enough to ensure an adequate standard of living post-retirement.”

Rising life expectancy

With life expectancy rates rising thanks to advances in healthcare and better living standards, the concept of traditional retirement is fast disappearing, he warned.

“While retirement is a long way off when you are in your 20s, it’s actually the best time to begin saving and harness the power of compound interest to maximize savings.”

In terms of how much to save, Valehca said it was very different from person-to-person, with the figure varying depending on a person’s age, life goals, lifestyle, and location of retirement.

“However, in the early 20s and 30s, individuals must be flexible with their savings to also prepare for the unforeseen events of life. Whereas the 40s are when a person hits the peak in their earnings, and this is the best time to correct previous errors or aim to save more for the golden years,” he added.

Valehca said when you save and invest your money early, you stand to benefit from compound growth, a similar concept to compound interest.

“This gives you a larger balance to earn future interest on, leading to even bigger returns,” he said. “Moreover, even cautious investors can be affected by market downturns, which is another reason why it’s so important to save early. It means that if the markets take a downturn, you have time to make up for it.”

Beginning early, he said, provides individuals a jumpstart to their retirement and erodes the wonder of “will I have enough when I retire?”

Diversify assets

Valehca said asset allocation is one key factor for individuals to watch out for when investing in retirement, warning that traditional bank savings accounts won’t cut it.

“Diversification is essential, and funds should be split between two to three reputed financial firms,” he said. “Avoid falling for ‘get rich quick’ schemes.”

“Additionally, parking funds in a bank deposit and believing that money is saved for retirement would be a grave financial error. Saving schemes in banks hardly beat inflation. Investors need to understand the power of compounding and should use the volatility in markets to their advantage.”

Haitham Sadek, founder and financial expert for Wealth Heights, also told Al Arabiya English many people will be unable to retire due to a lack of savings and foresight.

“Very sad statistics in the US show almost 80 percent of the people are not ready to retire due to lack of enough savings. This percentage is much higher in the Middle East region.”

Sadek said a lack of financial education was chiefly to blame for people not saving enough, adding that more needs to be done to help educate on the basics of key investment categories like real estate, stocks, bonds, and precious metals like gold.

“People should start saving for their retirement as soon as possible,” he said. “I think they should invest the maximum they can - but as a rule of thumb at least a minimum of 20 percent of their monthly income.”

“Financial education is a must, and it is really very simple you can do it yourself if you put the right effort. It requires long-term thinking and avoid ‘get rich quick’ scams.”

Read more:

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Dubai announces ‘retirement visa’ scheme for resident expatriates, foreigners

Getting into the saving habit in the Gulf

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