What to do if you're 50 and have no pension
We all make mistakes, especially when it comes to managing our money, and one of the most common is failing to save enough for retirement.
Building a pension to see you through a retirement that could last more than 20 years is never easy, unless you are a super-high earner, and that means you have to start early.
Too many expats find themselves wondering what happened to that fortune that they came to seek.
Ben Barber, financial blogger in the UAE
If you haven't got going by age 50, you face a real challenge but there is still time to put things right — provided you don’t waste any more time.
Mark Chahwan, co-founder and chief executive of Dubai-based robo-adviser Sarwa, said ideally, you need to save enough pension to generate 70 or even 80 per cent of your previous income, which is a tall order in 15 years.
You may not have enough time to build a million-dollar pension pot, but something is always better than nothing.
“If you can save $500 (Dh1,835) a month over the next 15 years, and achieve an average annual return of 7 per cent, you will have a nice little nest egg of $150,000 by age 65,” Mr Chahwan said.
Unfortunately, $150,000 is nowhere near enough to fund a comfortable retirement, so you may need to work a lot harder than that.
Start by taking the axe to all your unnecessary spending to free up more cash.
“Cancel that membership that you no longer use, downgrade your TV, internet or phone package, look for a bank account with a lower monthly charge and download money-saving apps to keep track of your spending and saving,” he said.
Consider bigger cutbacks, such as downsizing to a smaller home in a cheaper area or down-shifting from being a two-car family.
“If that allows you to invest $1,000 a month instead, you can double your pot to $300,000.”
Again, you ideally need a lot more, so you may have to push back your retirement age, or take on a small “side hustle”, Mr Chahwan said.
"This could be anything from running a freelance consultancy based on your work experience to dog-walking or pet-sitting, becoming a landlord by renting out space in your apartment, or selling items online.”
So how much do you need for a comfortable retirement? A rough target many use is to build a pot worth 25 times your annual living expenses.
Chris Davies, chartered financial planner at The Fry Group, says if you do this, you can then apply something called the “safe withdrawal rate”, which states that if you withdraw 4 per cent from your pension each year, you should never run down your capital.
“So if you want a sustainable retirement income of £20,000 [Dh93,787], you should aim for £500,000.”
Remember that while a pension is likely to be your primary retirement planning vehicle, it isn't your only option, Mr Davies said.
“Property, cash and other investments can also generate income in retirement.”
Simply putting cash in a savings account offering a near zero return will not help you make up lost ground. You really need to invest in a diversified portfolio of shares and bonds, with ready access to your money and no penalties for gaining access your funds, Mr Davies said.
Demos Kyprianou, a board member of SimplyFI, a non-profit community of personal finance and investing enthusiasts in Dubai, advocates a “passive” strategy through investing in global stock market indices using a low-cost exchange traded fund (ETF).
"Otherwise the charges from using financial advisers and investing in actively managed funds will eat into your returns,” he says.
Like many SimplyFi members, he pursues "Boglehead” principles, based on the philosophy of John Bogle, founder of the Vanguard Group.
Bogle revolutionised the investment world by creating the first passive fund in 1976, the Vanguard 500, which tracks the returns of the S&P 500.
There are now thousands of low-cost ETFs to choose from but Mr Kyprianou says you can keep things simple by investing in just two, one tracking a portfolio of global shares and the other tracking lower risk bonds.
A popular combination is the Vanguard FTSE All-World ETF (VWRD), which has annual charges of just 0.25 per cent, and aims to deliver long-term capital growth by tracking the FTSE All-World Index of large and medium-sized companies in both developed and emerging countries.
The fund holds almost 3,000 stocks in about 47 countries and Mr Kyprianou said this was far safer than putting all your money in a single country, or worse, a single stock.
For a bond fund, he likes the iShares Global Govt Bond UCITS ETF (IGLO), which has charges of only 0.20 per cent.
The more risk you are willing to take, the greater proportion of your savings you should invest in the stock market.
“If you have 15 years to retirement, you need to save the maximum you can each month, because you no longer have any time to waste,” Mr Kyprianou said.
Ben Barber, who writes expat finance blog www.buildingwealthwisely.com, says conventional wisdom states that your fifties are the pinnacle of your career, when your earnings are at their peak, but the reality for many is often different.
If you haven't saved enough, you are not alone.
“Too many expats find themselves wondering what happened to that fortune that they came to seek,” Mr Barber says.
You must be on the alert for advisers selling investment plans with high upfront charges and restrictive terms that will eat up much of the money you invest and impose heavy penalties if you want to get access to your money.
Time is short but you must shun get-rich-quick schemes, Mr Barber says.
“If anything looks too good to be true, it almost certainly is, and you can’t afford to take a punt on anything speculative at this point,” he said.
“Focus, be positive and invest all you can. Your future self will thank you for it.”
Updated: November 10, 2019 02:39 PM