The Pension Dilemma for Expats
| Is there a disconnect between expectation and reality when it comes to pensions? The data would seem to suggest so. The current average life expectancy in the UK, UAE and India is 81.77, 78.46 and 70.42 respectively, and this is expected to increase over the next 20 years. And results from a recently commissioned Retirement Survey by RL360, which had a sample size of 1,009 respondents across the UAE, showed 63% planned to retire before they reached the age of 60. It follows, then, that people will need to save more and start earlier. But are they doing that? According to the survey, no. In fact, it’s quite the opposite, with 45% of respondents admitting they haven’t even started saving for retirement. Another 16% said they’d leave it until 5 years before they retire, 22% said between 5 and 10 years before and 18% between 10 and 15 years. Just 25% said they will plan more than 15 years ahead and 19% say they don’t know when they’ll start at all. Additionally people are vastly underestimating how much money they will need per month when they do retire. More than half of those surveyed said they’d need less than USD 5,000 a month to live on during retirement. This leaves little room for manoeuvre, especially when it comes to unexpected costs like medical care and home adaptation in the event of ill health. The solution? How much you need obviously depends on your retirement plans but you can never go wrong by getting the savings ball rolling now. For instance, you could pay regularly into a regular savings plan which offers access to a range of investment funds to build a balanced and diversified portfolio. How much will I really need? The following example assumes someone plans to retire at 60 and would need a pension pot of $1 million. |
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| The earlier you start the more time you have for your investments to grow. |
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| Current Age | Required Monthly Savings |
| 30 | $1,080 |
| 35 | $1,543 |
| 40 | $2,268 |
| 45 | $3,572 |
| 50 | $6,354 |
A $1,000,000 pension will give you an annual drawdown of $50,000 per year (assuming you take 5% p.a.) So, if you retire at 60, you will receive an annual pension of $50,000 per year for the next 20 years, taking you to 80 years old, which is roughly the current life expectancy for expats.
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