Majority of savers set to be disappointed by retirement savings
Funding their children's education, investing in property, and establishing or funding their own business are the most common aims for savers in the UAE, Standard Chartered's Wealth Expectancy Report for 2019 has revealed.
However, this is often at the cost of saving for a comfortable retirement. The report, which examines the saving and investment habits of 10,000 emerging affluent, affluent and high-net-worth individuals (HNWIs) across 10 fast-growing economies, reveals a universal challenge: people's aspirations outstrip their 'wealth expectancy', or their total net wealth at age 60.
Savers in the UAE, with a wealth expectancy of $864,000, face one of the smallest wealth expectancy gaps amongst the markets surveyed: by the time they are 60, close to six in 10 of people in the UAE will be more than halfway to achieving their aspirations. While savers in the UAE regard financial security as critical to quality of life and happiness, they also to focus on living in the here and now. In the affluent group, 51 per cent of individuals say they prefer to live in the moment rather than worry about their financial future.
The average wealth expectancy of those in the UAE with enough disposable income to save and invest is $864,000, or $391,000 for the emerging affluent, $922,000 for the affluent, and $1,278,000 for HNWIs. On average, this would give people in the UAE $6,639 to live on per month during retirement, which is less than both their current income and their wealth aspiration. If they were to spend at the average monthly rate to which they aspire, their wealth expectancy would last the emerging affluent 11 years, the affluent 13 years of retirement, while HNWIs would be able to fund 13 years.
"Identifying as high net worth or affluent now is not an indicator of being able to achieve your wealth aspiration in future. With 56 per cent of savers in our study looking set to be disappointed with their financial situation when it comes to retirement, the time to take action is now. Financial institutions have an important role to play, starting with an understanding of their clients' needs, so that they can educate and empower them to manage their wealth in line with their aspirations," said Sonny Zulu, head of Retail Banking at Standard Chartered UAE.
Vijay Valecha, chief investment officer, Century Financial, said that, as a rule of thumb, an average individual is required to save a minimum of 15 per cent of his pretax income each year in order to retire comfortably. The figure is primarily assumed on the average prime working age of 25-67 years.
"The 15 per cent figure is considered as an extreme, especially by young people who start on early with their career," he said. "However, when one considers this figure against other expenses and individual fixed savings towards family needs, the 15 per cent mark would in effect turn out to be the bare minimum requirement. The ideal scenario would be for an individual to start saving for retirement as soon as he lands his first job. An individual, who is looking to retire early, may look to increase the 15 per cent to above 20 per cent."
He added that using gratuity to incur expenses post retirement has often turned out to be a bad idea. "As per a recent market survey, almost half of UAE residents are utilising or plan to utilise their gratuity payments towards clearing outstanding debt. Investments, apart from normal post retirement options like gratuity, have become a need of the hour. Investments options vary from being short-term in nature to long-term investments. Long-term investments are those that are categorised for investments beyond at least 10 years such as stocks, exchange-traded fund (ETF's) and dividend paying bonds/related bond ETF's."
Investing in blue chip stocks with decent fundamentals would be a wise investing approach to start with, he said. "These are the stocks that typically grow hand in hand with the overall economy. One may also look to diversify into other fixed sources like bonds or money market funds that have high liquidity."
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