Early planning for retirement kitty counts

The 30s period is usually not considered the height of an individual’s wealth building potential. Many people at this stage are still climbing the corporate ladder.

As they get better in their jobs, they earn significant promotions that can increase their earnings capability, which usually happen in their 40s.

Does this mean to say that if you’re in your 30s and your pockets are running on empty, you can be complacent about it?

“Generally, in your 30s you are not yet at the peak of your earnings capability, so you have the possibility of increasing earnings, but you’d be wrong to expect that to continue forever. At around 45 to 50, you’re likely to be promoted to the most senior position you will hold and after that, salaries decline as you get older,” notes Steve Gregory of Holborn Assets.

Darren Ashley, managing director at Candour Consultancy, agrees that the 30s is indeed a crucial decade in financial planning for adults.

“It is vital that an individual should start saving in their 30s if they have not done so already. The cost of delaying the savings process can have a dramatic effect on both the amount you need to invest and the impact this will make on your lifestyle,” Ashley points out.

To highlight the benefits of saving early, Ashley cites as example the offshore pension plan of Friends Provident International (FPI). Under the scheme (see table below right), FPI calculated that if someone starts saving at the age of 30, he would need to save $1,845 (Dh6,771) a month to reach a retirement fund worth $1 million by the age of 55.

“By delaying saving by just five years, the amount he would need to save each month would jump up to $2,670 per month and the older he gets, the more he is going to need to save. By the age of 45, he will need to be contributing $7,000 a month to meet the same goal,” notes Ashley.

“Not only is this going to be much harder on the pocket, the total contribution is substantially higher as the contributions have had less time to grow.

“Now $1 million sounds like a lot of money, but when you consider current annuity rates for a 55-year-old are just over five per cent, this only amounts to an annual income of $51,000. This would be lower still if you want to inflation-proof your income,” he adds.