Don't be an ostrich Preparing for retirement P 48
Don't be an ostrich
Retirement has almost become the-word-that-should-not-be-mentioned amongst those born in the 1960s and 70s. Almost as feared as JK Rowling's "Lord Voldemort" with some age groups, it is a reality that looms large on the horizon.
As I'm entering what is deemed to be middle age at 45, I'm not proud to say that I didn't save very much in my twenties. My thirties were better as my husband and I engaged a good advisor. When we had the money, we saved as much as possible. When we were poorer, we economised and lived well within our means. This has put us in a great place as we head towards the latter part of our careers. Both now selfemployed, this front-loading of our pension pot should help us and our family in the years to come. Let's take a different viewpoint from those who fear the concept and start to think positively about retirement as a time for discovery and growth. What four things should we include in our retirement planning that can potentially extend our lifespan? For me it might be regular holidays, healthy food, a monthly massage and weekly pilates and yoga classes. Surprisingly enough, my menu for retirement wouldn't be too far from the suggested real solution to improving longevity1: mental fitness, emotional wellness, physical health and future planning.
Tackling it head on
So, let's start with the financial side of things because no-one can expect to maintain one's current lifestyle with a massively reduced income. We know retirement must be tackled head-on, but burying our heads in the sand - like the aforementioned ostrich of the title - often looks like the more appealing option. Serious consideration of the realities associated with stopping work and not having a regular income leaves many feeling uneasy. Whilst some see retirement as freedom from the daily routines and stresses of the modern world of work, others view it with nothing short of trepidation or dread. One issue is the heightened risks of financial insecurity in retirement that arises from poor long-term planning during a professional's working lifetime. This can be twinned with unrealistic assumptions about the value of an individual's savings. Starting early and putting more into
savings as you approach retirement can help, but many find themselves trying to play catch-up for the years when retirement seemed a very distant prospect. Waking up to reality in middle-age and seeing the years remaining until retirement looming big can be a much needed jolt to the system.
MENA women - differing pension entitlements and attitudes
A recently published OECD report, Women's Labour Rights and Entrepreneurship in selected MENA countries, suggests that
2 the countries in question across MENA (Egypt, Morocco, Algeria, Tunisia, Libya and Jordan) should move towards pension parity (public/private and by gender) by encouraging female employees to extend the age at which they retire so that they can contribute more into their pension pot. The OECD also suggests that public awareness campaigns take place and assistance is given to rural women to highlight the implications of retiring early or of not working fulltime. Part-time employment or years absent from the workplace are often bi-products of raising a family. This absence from the workplace will often lead to a reduction in the family's income, further reducing the possibility of saving enough for their future retirement.
need to save more
According to professional services firm, Towers Watson, in their 2013
3 survey, savings by employees' in the Middle East and North Africa (MENA) are alarmingly low, with a quarter of survey respondents saving nothing at all, and more than half (55%) putting aside less than 10% of their income. Towers Watson notes that these findings may be a reflection of the inclusion of Egypt and the Levant in the survey. “However, when we look at only the GCC countries we still see this pattern,” says the Towers Watson analysis. “Over a fifth do not save anything, and almost half save less than 10% of their earnings. This contradicts the impression that residents of the GCC save a significant proportion of their income and is surprising given the prolonged global economic uncertainty.” Savings rates are higher among expatriates in the GCC, according to the Towers Watson data. But its survey still found that almost one in five (20%) expatriates save nothing at all. Among those in the GCC who do put aside a part of their income for retirement, the amounts saved are modest. According to the Towers Watson survey, 45% of respondents have savings of less than $5,000, while 13% have between $5,000 and $10,000, and 10% have nesteggs of between $10,000 and $20,000. These private savings are inadequate to cover employees’ expectations of their retirement income. In its most recent UAE retirement survey, HSBC found that on average, pre-retirees expect their retirement savings and investments (excluding pensions) to last for 12 years. “With pre-retirees expecting to fully retire at age 60 and a typical life expectancy in the UAE of 76 years, there is a four year ‘gap’ where they will be solely reliant on any state, employer or personal pension provisions they may have,” says the HSBC analysis. Research4 from Old Mutual International and Quilter Cheviot challenges the preconceived ideas people may have around retirement. The survey demonstrates the changing face of retirement, as the line between working life and retirement becomes blurred. Rather than the more traditional approach to retirement, where people work into their 60s and then stop, more people expect to work part-time, and enter retirement gradually. A staggering 3 out of 4 (76%) people living in the region plan to continue working in retirement, either parttime or in a different job, marking a big shift in expectations. Many may feel too young to stop working and want to keep going to maintain interaction, with 41% saying they will continue working for social reasons. Others plan to continue working part-time to make ends meet, with 35% saying they will work for financial reasons. Just 8% are planning to stop working altogether when they retire and 16% are as yet undecided. Mark Leale, Head of Quilter Cheviot’s Dubai representative office, says: “Retirement no longer happens on one day, it is a longerterm transition and therefore the financial plan that people make for retirement also needs to adapt. Making sure you have a financial plan that extends beyond the time you give up full-time work is more important than ever.” Of those who plan to continue to work, an astounding 77% plan to be self-employed, perhaps showing the region has a significant number of budding entrepreneurs. Being self-employed can come with its
own challenges. If people turn to self-employment as a means to fund their later retirement, they will need to ensure they put adequate financial plans in place. Paul Evans, Head of Region, Middle East & Africa, Old Mutual International, comments: “There is much less certainty on what retirement looks like now and no two experiences will be the same. It is interesting that so many will turn to self-employment, which means the onus will be firmly on the individual to plan accordingly and ensure they are not exposed to financial uncertainty in later life.” The average amount of time people in the region expect retirement to last is 20 years. This is a long time for any final salary payment (or gratuity/end-of-service benefit/ bonus) to last, which is perhaps why so few people in the region are relying on this in isolation. Instead, any money paid by an employer should form part of a person’s longterm financial plan, with adequate personal provisions being set aside to fund their long-term future. Paul adds: “Retirement income is one of the most important areas in financial planning as it can have far reaching implications on someone’s quality of life when they stop working. A final payment should be considered when looking at someone’s long-term savings plan, but as our research shows, it is not being relied on in isolation. “Many factors contribute towards building a long-term financial plan, and I would urge people to seek financial advice from a professional to ensure they have adequate savings in place to fund their aspirations in later life.” Mark Leale concludes: “The need to plan carefully and ensure savings last the full length of retirement is crucial. We are seeing growing demand in the region from people who want to take control of their pension savings; have the funds managed by investment experts and stay connected with the progress towards their long-term financial goals.”