retirement plan

Financial Independence vs Retirement Planning

What comes to mind when you hear the phrase ‘Retirement planning’? Is it the picture of you at age 60, sitting at home, twiddling your thumbs, doing nothing?

Of course not. For a person who is used to working 8-10 hours a day, or sometimes more, the thought of sitting at home, doing nothing, is unthinkable.

To put it in another way, ‘If money was no object, would you still be at work, or would you be doing an activity that you loved?‘.

The problem is ‘Currently, money is still an object. The minute you stop working, you will stop earning’. So the fundamental question here is not ‘When do you plan to retire?’, it is ‘Which activities would you do instead of work, and what will be the lifestyle cost attached to them when you do decide to quit working?’.

Hint… the age to make this choice does not have to be 60. For some, it can be earlier and others later depending on their personal preferences, but you do have to prepare for it. The earlier you prepare for it, the sooner you will have your choice of quitting work and doing the activity that you love to do.

So, focus on ‘Financial independence’, instead of ‘Retirement Planning’.

Where will we end up retiring?

This is literally million dollar question. After staying in the UAE for 23 years, I still have my doubts as to where I will end up retiring. Sometimes I think it will be my home country, at other times I think I might end up staying here itself as an owner of a business. Either way I have to prepare for that eventuality.

And as expats we are caught in the middle. Most of the time, we are tax residents in the UAE, which means we do not pay taxes in our home country (except Americans of course). Heck, that’s the point of living in the UAE, isn’t it? Not paying taxes?

The downside is, when you don’t pay taxes, you are not eligible for any social service or retirement benefits in your home country, assuming your country even has these benefits in place. Even if they do have these benefits in place today, the situation and rules could change by the time you plan to retire.

Would you want to leave your future up to chance?

Think about it this way,

  1. How much cash do you typically spend on a weekday? The answer is typically up to AED 50 or 100.
  2. How much cash do you typically spend on a weekend? The answer here is typically AED 300 to 500.
  3. Why is the weekend spend 3 to 5 times more than the weekday? Because you have more time to do the activities that you love on the weekend. You don’t just sit at home, do you?

Ask yourself this question – ‘How much would you end up spending each day, if every day was a weekend, and how are you preparing for it?

How much time have you got left?

Depending on your current age, you might have less than 20 years left, before you reach age 60. That’s equal to 240 salaries or less that you can put to work towards your financial independence.

Time is literally money my friend. Start saving and investing today towards your financial independence.

The Million Dollar Question – How much is enough?

If you want a monthly income of USD 5,000 (USD 60,000 annually), you will need to save up to USD 1,200,000, to be able to withdraw USD 5,000 per month at a rate of 5% p.a., of your 1.2 million dollar nest egg.

It is literally a Million Dollar Question. A question, if unaddressed, will leave you financially dependent on others, or worse, in a bad shape.

As an expat in the UAE, you are the ‘Master of your own destiny’. Wake up and start saving/investing.

Meet the author
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Amit is an Independent Financial Advisor, based in Dubai since 1997. He has authored the ‘6-Step Financial Success Course’, and the book ‘Creating, Preserving, Distributing Wealth’. He helps business owners and professionals ‘Create a Second Income’ through investments.

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