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How much do I need to save to retire?

The sooner you start putting money aside for your retirement, the more comfortable it’s likely to be when you get there.

But it’s difficult to know how much you’re going to need, because your lifestyle and spending habits will change when you stop working.

In this guide, we look at 5 of the big questions about retirement:

What lifestyle will you want?

A handy way to think about your standard of living in retirement is to split it into 3 options:

  1. Minimum – enough for the essentials
  2. Moderate – more financial security and the occasional indulgence
  3. Comfortable – greater financial freedom and some luxuries

Deciding on the lifestyle you’d be happy with is the first step – then you can think about how much it might cost you.

What kinds of things will you be spending money on?

Think about how much you might spend on these things per year:

  • groceries
  • utility bills
  • mobile phone and internet contracts
  • clothing
  • gifts and birthday presents for friends and family
  • home improvements
  • vehicles – how often will you want a new car?
  • holidays – how often do you want to go away, and where?

Where you live will also play a big role – do you plan on retiring in the UAE?

If you’re an expat, are you considering moving back home to be closer to family? Make sure you adjust your cost of living expectations to where you intend to retire.

In general, most people find their living costs go down in retirement as their pace of life slows down, they have less responsibilities to support family, and they cut back on commuting costs.

But your income will likely reduce significantly too, so it can be a balancing act between your savings and your lifestyle.

How much will you need in savings?

Once you’ve worked out a rough income you’ll need, you can start thinking about how much you need to save.

If you’re a UAE national, you and your employer may be making mandatory contributions to your pension, and this will help build your savings for retirement.

But if you’re an expat working in the UAE, you may not be making pension contributions through your employment.

Most expat employees in the UAE will, though, be entitled to end of services benefits when they leave employment. This is calculated in line with how many years you’ve worked at a company and your basic salary.

Aside from this and any pensions you may have inside or outside the UAE, you can also put money towards a savings account or investment account.

As an expat, you’ll need to meet the minimum requirements for a retirement visa.

You’ll need one of the following:

  • an annual income of AED 180,000 from pensions and other sources
  • savings of AED 1 million in a 3-year fixed deposit account
  • Dubai property investments of AED 2 million with no mortgage
  • a combination of savings and property investments of AED 2 million[@plan-your-retirement]

You can apply for a retirement visa at age 55, and you’ll need to renew it every 5 years, subject to the same conditions.

How long will you need a retirement income for?

It’s impossible to know how long you’ll actually need your income for in retirement, because we don’t know how long we’ll live.

Taking 4% of your pension or retirement savings a year is sometimes used as a general figure for retirement calculations.

With no other income sources, this could give you 25 years of income at that level, not accounting for inflation.

If you invest your retirement funds and they grow in value, it will give you more flexibility. But equally, if your retirement investments fall in value, it could reduce how much you can sustainably withdraw.

This is why it’s important to re-evaluate your attitude to investment risk in retirement.

Retirement for expats in the UAE

A final thing to consider as an expat in the UAE is the tax on your pension income when you retire.

If you retire in the UAE, you might not need to pay any income tax on your pension, even if you’ve benefited from tax relief on your contributions in your home country.

If you do move away from the UAE and withdraw your pension back home, it will be subject to your local tax rates, so factor this into your retirement calculations.

Explore more

It’s never too early to start thinking about your retirement and what you want it to look like. Get tips on how to plan properly for retired life.
Find out how pensions work, whether you’re a UAE national or an expat, and discover 3 alternatives to pensions to help you in retirement.
Whether you’re in your 20s or your 60s, a retirement plan can give you the best chance of financial freedom in the future.

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