Past your peak? Don’t risk pensioner poverty

How do you avoid poverty if you’ve passed your peak earning years, with no pot in place?

Gary Clement for The National

Today’s Capital Conundrum: pensioner poverty. How do you avoid it if you’ve passed your peak earning years, with no pot in place?

If this is you, the good news is you’re not alone (although I’m not sure if that makes you feel better). Life does not pan out as expected for most of us. Unfortunately, that includes our financial life, even if you’ve been diligent and saved.

Here is what can happen:

1. Woman close to 60

She has a young child (two years old). Her marriage ended and she spent all her savings figuring out how and where to live in the UAE. She does not want to leave. Having spent decades in the country, it means her support network is here. She believes she doesn’t know how to live anywhere else and is scared – which is understandable. She had a super job pre-marriage, but because her husband moved a lot with his, she stopped working. Her savings bought her a couple of investment properties with mortgages. Their values plummeted. She has nothing now. She is looking for a job (good luck to her) and needs to think of her and her child’s future.

2. Woman, age 50

She has two young children, is divorced and her savings have been fleeced – defrauded by someone she trusted. She was one of the world’s “good savers” – choosing to stay in and write rather than go out in her younger years. And still she ended up on the no savings pile.

3. Two women, both 70-plus

Both are still working full-time in Dubai. One has property as her theoretical cushion – but they are mortgaged, and being interest only, there will be nothing left for her if she sells. The other has taxi licences abroad, but a change in government regulation means these investments – that would have provided great passive income if the law had not changed – are now pretty worthless.

None of these people can afford life without earning.

This sort of situation – on the wrong side of 50 and with no means for a financially comfortable retirement – is not unique to single older mothers or women. It can happen to any­one.

In fact, many expats cannot afford what they would consider a quality retirement. Sam Instone, the founder of the fin­ancial services company AES International, says the vast maj­ority do not start putting money away early and end up in similar situations.

He believes the global estimate of 33 per cent of people with no provision applies to UAE-based expats, and that only about 5 per cent have enough for what they consider a comfortable retirement.

So what can we do about it? Here is an action plan:

• Discipline – save more, spend less.

• Put savings into an exchange-traded fund (ETF) on a low-cost platform. I rate Vanguard as good. Mr Instone recommends iShares and Dimensional too.

Then leave it alone, for as long as you earn. Do not touch it for at least five years due to the ups and downs of the markets and preferably have at least a 10- year horizon.

Mr Instone thinks these women should have a self-managed solution like the Vanguard Lifestrategy Funds – low cost, well balanced, safe.

He goes on to stipulate not to try to time the market or actively manage their investments. If you read this column regularly, you will know why. We leave money on the table when we do this. The big idea here is to accumulate to utilise.

Because they are starting quite late, today’s case studies will probably only ever cover their essentials. Especially if Mr Instone’s sobering thoughts prove true: “We need to plan to 105,” he says.

“This sounds far-fetched but one in three people born today are likely to live to 100. My great grandmother died at 106 and my grandmother is currently 99. All your ladies simply need to save or invest money (the right way) and trust the power of the markets. The more they can save, the better. If their income earning opportunity goes and they are in drawdown this presents a likely shortfall and a problem.”

Yes, there is a danger of running out of capital, which is why today is the best day to start.

The 70-year-old is never going to be younger than she is today and therefore today is the best possible day to start saving to benefit from time. She may have 35-plus years left while the 50-year-old may have 50 years, and so it is certainly never too late to begin.

There are ways of bringing costs down, like living somewhere less expensive and figuring out how to earn way past conventional retirement ages – I’ve written many a piece about this. But here’s a thought: (cav­eat: I am not advocating not saving for your later years – just a thought if you’ve arrived there with very little): how about setting up a commune somewhere “cheap” and supporting each other?

You can barter, grow vegetables and do that very special thing – create a community that shares and cares. Get it right and it’ll likely be the best part of your life yet.

Nima Abu Wardeh describes herself using three words: Person. Parent. Pupil. Each day she works out which one gets priority, sharing her journey on finding-nima.com

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