The journey of our life is full of challenges from beginning to end. Throughout our lives, we keep striving to achieve milestones and try to navigate uncertainties.
No matter what phase of life you are going to, you can always take essential steps to be financially independent after retirement. It is more than a matter of luck and entirely depends upon wise financial planning to achieve the desired objective.
In response to the cost-cutting strategies organizations have significantly curtailed the conventional and other post-retirement benefits. Due to this defined contribution plans are being followed in private organizations.
Therefore, it reflects the major responsibility that comes on the employee’s shoulder. You cannot simply throw away your hands from this responsibility.
Instead, wise financial preparedness will be required to secure your financial independence after retirement. You would have to decide when to start saving, how much to save, and where to invest.
A plethora of people have pretty scarce knowledge regarding financial markets, their associated risks, and the amount they are supposed to save to achieve post-retirement goals.
So, if you have landed a new job or are just at the beginning of your career, this is the precise time for retirement planning.
At this stage, it is imperative to establish a strong financial foundation to make informed decisions. Hence, we are going to begin with the most commonly raised question about what exactly a retirement plan is and why we need to have one especially during and after this pandemic.
Why do you need to have a retirement plan?
Over the years the importance of retirement planning hasn’t changed much being on the same track of earning, saving, and retiring. However, employees in today’s world are facing real-time challenges that the previous generation never had to worry about.
The first and foremost reason is the improved average life expectancy. With the evolution of medical science and biotech, people are living longer than before.
So, a longer life means you would need more funds after retiring to sustain your financial independence. If the average life expectancy is around 80 years and you are lucky enough to live even longer than the average age.
Then you would have to stretch your funding even more. Therefore, you need to be prepared more than an average life expectancy.
Secondly, it is obvious that you cannot keep working your entire life. There is a certain age, after which you start facing a decline in your performance.
In some cases, it becomes nearly impossible to work at all due to the various underlying health conditions. Planning for retirement will also help in having sufficient funds to spend on your healthcare when it is done in the right way.
Lastly, if you are part of a family you cannot offload the family responsibilities even after your retirement. A wisely devised retirement plan will give you a sigh of relief. This will help you in eking out the expenses and other family responsibilities smoothly.
Why is post-COVID-19 retirement planning more important?
Our world is facing an unprecedented health crisis resulting in a huge loss of human lives and a large number of businesses all around the world. Businesses went bankrupt worldwide and consequently, millions of people got laid off from their jobs.
Thus, our global economy is facing the worst challenges of all time and a severe financial crunch. Employees who used to withdraw great salaries had to borrow from their plans due to unemployment.
According to a survey it has been revealed that a majority of people who were of ages 40 to 65 had to make early withdrawals from their retirement plans. It will take more than six years to accumulate those funds again.
This reflects that we need to have proper contingency planning for establishing funds reservoirs or financial plans for emergency situations. The unprecedented health crisis has changed our perspective of retirement and our decisions on retirement plans.
People are having various concerns regarding the right time to develop a plan such as if they should opt for it now or wait for the situation to get normalized. Is postponing a retirement plan the right strategy?
Irrespective of whatever long-term plans you had, this sudden outbreak is bound to create such apprehensions. However, it is essential to understand that having a resilient retirement planning system is more important than ever to unlock the wide avenues of choices.
It is vital to establish a defined and innovative pension design as you approach retirement, to keep track of the financial contribution. If you couldn’t manage to plan before then this is the right time.
The best part is that it’s never too late to set up a retirement plan. While, COVID-19 has wreaked havoc in organizations as well, and thus it is critical for employers to take care of employees’ health and benefit plans.
Therefore, with the help of a financial advisor, you can set a well-planned strategy to achieve your retirement goals.
Retirement planning in UAE
Like many other countries, UAE has been severely affected by COVID-19 pandemic destructions, which continued to throw retirees up in the air.
A large number of people and expatriates who were above 50, had to delay their retirements and also planned to work indefinitely. This gives a clear understanding that retirement is not an age anymore.
We need to be well prepared for smooth financial backing for our golden time. People living in UAE tend to invest in their retirement plans from UAE. As it is considered an eligible investment state both for natives and expatriates.
It is one of the most business-friendly destinations while offering greater tax relief. Therefore, it has become one of the most attractive regions for investment.
Even in the time of the pandemic, you do not have to delay your retirement planning because it is not something you plan for the short term. Your long-term investment and retirement goals require perpetual investment.
COVID-19 has taught us to put more money aside to have strong financial backing after retirement. Starting early and saving in a more planned manner allows opting for retirement whenever needed. You will never have to keep yourself straining for work if you will choose the right track.
We need to understand that retirement is not an age anymore. Life after retirement can be a fulfilling journey, imagine the things you always loved and wanted to do but never had the time for while you were working if you’ve booked a retirement plan in UAE you can have the satisfaction that once you are retired you will start the things you always loved.
You can be an artist, a poet, a writer, a producer, or someone who loves to travel around the world enjoying freedom. In order to decide what we want to have in our future, we need to set retirement goals today.
Set retirement goals
When I was working the measurement of success was how big my house is, which car I drive, which phone I carry, how much I spend in gatherings, and what kind of lifestyle I have.
In the midst of all this, a person can easily get carried away by the fast-paced world. However, one should always remember that with each passing day, you are coming near to your retirement, and if you want to maintain the lifestyle you should find ways to keep it.
You can save as much as you can but saving is never enough almost always, inflation catches you up or the value of money goes down. What can be done in such a volatile situation?
If you don’t let your money work for you will never be able to beat inflation and you will never be able to save enough that guarantee a stable retirement. Remember the rule of wise investment: Your money should work for you.
How can I make my money work for me?
The answer is pretty simple, retirement plans. You start early, you invest regularly, and let the compounding do the magic for you.
However, it is you who is going to decide the size of the pension pot the duration of investment and the intervals at which you will invest. The more you will invest the bigger your pension pot will be.
Your saved funds will keep growing over the years before you retire. Also, you have a range of funds to invest in, to achieve the multiplier effect on your savings.
The power of compounding interest
The graph illustrates how compounding interest adds a multiplier effect to your retirement funds and you start receiving interest on the interest. The compounding amount adds to your principal to the earned interest in the previous year and then a larger principal amount is used for the current year.
In order to be on an optimum path, it is important to maintain a specific balance between your consumption and saving. This will lead you to be on your desired level of retirement income at your chosen retirement age.
Once you have started saving in your retirement account you have different options to invest such as stocks, bonds, or mutual funds. Also, you can have the right mix of different investment strategies.
This may vary on the basis of the amount of associated risk you may tolerate with each investment strategy. When you are young you are likely to invest actively in stocks. With the passage of time, it slows down and shifts towards more passive investment strategies.
Select your retirement account wisely
One of the most important factors that we generally overlook is the type of account we are stashing in the cash. In UAE most commonly used account is the bank savings account. Savings accounts can be a risky option as they are designed for short-term financial services.
This account can also negatively impact your savings as it offers way less return. The return cannot even cover the inflationary rate. Also, keeping your money in the savings account is the worst possible thing you could do with your cash.
Your money will eventually lose its value and your future savings can become worthless.
Seek professional advice
After retirement, you would want to have a peaceful life, which is free of stress and financial obligations.
You cannot keep on second-guessing and stressing over your retirement portfolios. A proper financial advisor may help you in enjoying retirement with full glory. The financial professionals will help you in organizing your finances while projecting the precise results of your investment.
They also help you in making better decisions about your money to reach your financial goals.
A good financial planner provides pieces of advice on the does and don’ts of retirement planning such as:
- What kind of investment alternatives may boost the future value of money?
- What will be the right balance between consumption and saving?
- Which is the most suitable retirement account according to your customized needs?
- How much to save for emergency funds?
- How can you improve the tax situation?
- What should be the rate of return to achieve your retirement goals?
A financial professional understands the case closely and crafts recommendations according to your set goals. He helps in wisely devising the investment strategy which is the right fit for you. People who are near retirement seek professional help more often than those who have just initiated their financial portfolios.
However, it is important for everyone to seek financial help to have a well-designed investment strategy beforehand. As you approach retirement you cannot afford to withstand the losses.
Conclusion
To summarize the whole discussion, It is likely that a lot of people who may have been about to start their retirement planning may have lost their jobs during the pandemic. This can directly impact your retirement plans, savings, and investments since the loss of a job or your main source of income could have set you back by a couple of years.
But now, with the job markets opening up and people developing new working habits or even their own home-grown ventures, starting a retirement plan anew will not be a hassle.
It is very important to have a retirement plan, especially after the pandemic of COVID-19 where a perfectly balanced life can, unfortunately, change into something unexpected. Whether you own a business, or you are a salaried individual remember the rule of happy retirement, start early & invest regularly.
Frequently Asked Questions
Retirement planning refers to the process of making financial arrangements and decisions to ensure a secure and comfortable lifestyle after retiring from work. It involves saving and investing money over time to build an individual retirement fund.
Why retierment planning is important?
Retirement planning is crucial because it allows individuals to achieve financial independence and maintain their desired lifestyle after retirement. It helps ensure that you have enough funds to cover living expenses, healthcare costs, and other financial obligations during your non-working years.
How has COVID-19 impacted retirement planning?
The pandemic has affected retirement planning by causing individuals to dip into their years of retirement savings due to unemployment or financial hardships. It has also created uncertainties about the right time to retire and the need for robust retirement plans to adapt to changing circumstances.
When should I start retirement planning?
It is advisable to start retirement planning as early as possible. The earlier you start, the more time you have to save and invest, allowing your funds to grow over time. However, it’s never too late to begin planning, and even small contributions can make a difference.
What factors should I consider in retirement planning?
Several factors need to be considered in retirement planning, including your desired retirement lifestyle, estimated life expectancy, current and future expenses, healthcare costs, inflation, investment options, and risk tolerance. These factors help in determining how much to save and how to invest your funds.
Should I seek professional help for retirement planning?
Seeking professional advice from a financial advisor or planner can be beneficial in retirement planning. They can provide personalized guidance, help you set realistic retirement goals, create an investment strategy, and assist in making informed financial decisions.
How does compounding interest benefit retirement savings?
Compounding interest allows your retirement savings to grow exponentially over time. It refers to earning interest on both the principal amount and the accumulated interest. The longer you save and invest, the more significant the compounding effect becomes.
Can I adjust my retirement plan if circumstances change?
Yes, it is important to regularly review and adjust your retirement plan as circumstances change. Life events, market conditions, and personal goals may necessitate modifications to your savings rate, investment strategy, or retirement age.
