Aiming for retirement in Cyprus

Those who are around the age of 40-50 should start considering their retirement income as a first priority and things to do once they reach the retirement age of 63 (optional 65) years old.

Most companies and well organised private businesses have in place a provident fund with contributions by the employer and employees at various percentages of their monthly income, which could amount to a sizeable sum which could help them during the retirement years. This amount could vary, but let’s take the example of on average around EUR 50,000 and could be multiple of this for the civil servants and others and much less for the ordinary labour force (those who need it more and should have been the other way around).

Unfortunately, by Cyprus standards, locals borrow against this provident fund, whereas others have their priority of helping their children with their studies etc, leaving them at the end with very little – it is a mistake to think that life ends at 70. Based on the Cyprus standards, life expectancy is around 75 years old for men and 80 years for women, say on average 15-20 years after retirement and Cyprus pensions do not necessarily cover the living expenses and the increasing health care (until the National Health System eventually takes shape).

Pension amounts again is a matter of contribution and vary from EUR 600 p.m. to 2,000 p.m. for the high-income earners.

As one gets older so will their expenses increase not only for their health care, but also for other expenses such as grand children’s requirements, etc. For one reason or other in Cyprus parents seem to be looked upon by their children at whatever age they are for help asking them for funding regardless – how unfortunate for most retired people who cannot say no.

Old age pensions are provided by the government only to those who are below a certain income, whereas widowers are entitled to a small state help. Not enough to live on – especially those who owe money and those wishing to live in a similar style that they were used to.

Planning for retirement is therefore a must in terms of retirement income and bearing in mind the prevailing financial situation I suggest that at an early age (even at the age of 30 years old) one should plan for the period after retirement. For this I suggest the following:

Invest in real estate for income which nowadays enjoy a return of 3-4% on the invested amount. What I refer to as a good investment is that one should aim for the rental income with a particular reference to shops and residential properties (apartments) the latter within the towns for which it now has a high demand and rents are on the increase. Apartments in Nicosia, Limassol and Larnaca are much in demand, as are holiday villas to let (see my previous article on the subject).

Location to target is Limassol for shops, Nicosia on high streets, and in the tourist areas, such as along the tourist roads. Pay special attention to Posseidon Avenue area and Coral Bay area in Paphos, the surrounding area of the Ayia Napa Marina and for the Paralimni region in the Pernera area and other seaside areas of the resort (in the case of non availability to target the hotels road at Protaras).

Buy-to-let shops as we have recorded with 3-4% p.a. return but less expenses, etc. reducing the income to 2-3%, a level, low as it may be, it is better than bank deposits, whereas governmental bonds are nowadays at below 1.5% (and going down).

Rents in Cyprus have all sorts of problems which refer to the statutory tenants (properties built prior to end-2000), non payment of rents and common expenses by tenants (provide a rent inclusive for the common expenses and maintenance), repairs, etc.

An upcoming form of investment (buy-to-let) are apartments, studio-1bed let for short stays by mainly foreign visitors (mainly business people) in Nicosia and Limassol. This is an alternative to hotel stay by visitors costing them less than half of the hotel stay, but in such occasions the units must be of very good quality and fully equipped with furniture and equipment. It also includes management on the investor’s side, but then the rents are almost double from the long term ones. If one can get connected with banks, auditors etc who have a long line of foreign visitors, it could pay.

As I have said, start considering your retirement income at an early and not at the end.

Having discussed this with our more affluent readers they have pointed out to us “why not invest abroad, e.g. in the U.K. in real estate where one can get a return of almost 8-9% p.a. or in international shares?” Quite right, but then, we are not talking about an investment of EUR 150.000-200.000 but more like 500,000-1 mln and in addition the recently introduced inheritance tax (U.K.) could amount to 45% tax on the asset (nothing for Cyprus).

Avoid buy-to-resell since what you should be after is an annual steady income and not speculate on such an event for the purchase. Having said that, the asset you acquire (apartment/shop) is there to sell in the future, even if sold at the price of acquisition it will still make sense – retaining the price of such investment is the minimum as nowadays the property market gets better and most likely it will increase bearing in mind the improving economic situation and the increasing demand.

So, let’s say at the age of 50 you invest in two apartments in Limassol, be it of some age but the building is well kept, for 1-bed EUR 120,000 and with an expected rent of EUR 6,000 p.a., less expenses, say net amount EUR 4,500 p.a. which shows a return of about 4.0% more than your deposits with the banks, etc.

Start considering this suggestions and specify the area where you wish to target. At some age you could secure a loan, but make sure that loans have to be repaid not later than the age of 60.