Over the past few years, there has been enough coverage in the media about the “retirement crisis”. Some perceive this to be an instance where people who haven’t saved enough are compelled to move in with their kids, whereas some depict this situation as one where social security goes bankrupt. 

While financial experts and investment firms have done enough to bring this crisis to awareness to help people make informed financial decisions, most of the global population still has mixed thoughts about this reality. 

Here is a simple breakdown of the retirement crisis, its effect in the UAE, and the factors contributing to this challenging global situation. 

The Reality Of The Retirement Crisis 

The term retirement crisis indicates a situation when there is a significant gap between the money many retirees and near-retirees have saved for their future to sustain them throughout their retirement years. In other words, this is a situation where people find themselves with insufficient savings or sources of income to live on in retirement comfortably and conveniently without depending on anyone. 

In the US alone, nearly one-third of the population has no retirement savings or pension, and more than half of Americans don’t know how much money they will need to retire comfortably. 

As a result of this, it is predicted that both American families and the economy, as a large share of households, may be forced to significantly reduce consumption during their retirement, whereas some will have to rely solely on their families, charities, and other government organizations for help to fulfil their basic needs. 

The Status Of Retirement Crisis In The UAE

According to a survey conducted by insurance company Friends Provident International Found, 45% of respondents said they have not saved up for their retirement years. It was also reported that 40% of UAE residents would start saving for retirement only 10 years or less before they reach retirement age.

Another similar survey by Mercer found that 45% of foreign employees in the UAE either had no means of maintaining a decent standard of living after their retirement or were forced to work beyond retirement age to support enough income to make ends meet in their late years. 

The study further uncovered a lack of financial awareness among respondents, where 61% reported no long-term savings, and 43% expected their end-of-service benefits to meet their long-term financial needs. 

Emerging Causes 

Increased longevity or lifespan, healthcare costs, and overreliance on social security are key reasons for the retirement crisis worldwide. Some financial experts also believe that the vanishing pension plan, a well-defined concept in the 90s, also adds up to the retirement crisis globally. 

In 1998, around 236 companies in today’s Fortune 500 offered a well-structured and comprehensive benefits plan that employees could rely on in their retirement years or for utilizing investment opportunities – compared with only 13 of those companies today. 

In addition to this “Nielsen Next: Understanding youth in the UAE” study conducted by the Nielsen Company found that lack of financial literacy, debt accumulation, increased spending on luxury goods, ignoring the importance of savings, and dysfunctional behaviour consumption, which focuses more on luxury acquisition than necessities, are some alarming habits that root the growth of retirement crisis in the UAE. 

While the internet is full of helpful information, it can easily get overwhelming to understand and make feasible choices tailor-made to your specific goals and risk tolerance. This is where a financial advisory professional like the AIX investment group can provide clarity and help you determine the next best steps to achieve financial security to spend your golden years.