Pensions: What Are They, And How Do They Work?
You may have heard of a pension. You may even have one that an employer set up for you. But what exactly are they, and how do they help you plan for the future?
A pension is, simply put, a retirement fund. You’ll fund your pension throughout your life, and at a certain age (which you’ll select) you can take that money out and use it for retirement. Some retirees choose to take all of the money out at once. Others elect to release these funds slowly over the remainder of their retirement.
How do pensions grow?
You increase your pension in two ways: by adding in money yourself, and by allowing that money to grow with the help of the investment options connected to that pension. You’ll also select which funds you’d like to see your money go to. These funds will have different levels of risk involved, and include equities, bonds, commodities, cash, and property, among other investment options.
The importance of pensions in the UAE
Many flock to the UAE because it offers a tax-friendly environment for expats and citizens alike. What many of these expats do not understand when they move here is that no one will be planning their retirement for them. The government has no retirement option available, and many companies do not offer pension plans with matching contributions. For many of us here in the UAE, we’re on our own in terms of planning for our future.
The trick to overcoming this is to set up your pension as early as possible, and stay focused when it comes time to add money into it.
Before you create a pension
Some planning is important before you go ahead and start your pension. We recommend that you sit down with your spouse and an advisor and discuss how much you’ll need for retirement.
You should also consider:
- What you see yourself doing during retirement, and how much you’d need to fund that lifestyle
- How much you’d need to put in per month to attain that lifestyle above
- How much risk you’d be willing to take on growing your pension
- Whether or not you’re entitled to the benefits offered by your country of origin
- How you can merge pensions together (if you had one from a previous employer)
- Whether or not you have any additional income during retirement (from an inheritance, or additional retirement plan)
- How currency rates might change, or how inflation could eat at those earnings
- What taxes are involved (especially if you take that money out early)
Our Pension Experts can assist you with these questions plus provide a tailored solution that fits your retirement needs. They will also compare the best plans so you get more when you retire.