Insights: What you should consider when planning your retirement

The ever-changing financial landscape of today presents numerous obstacles for people getting closer to retirement. The increasing lifespan of the ageing population strains traditional retirement systems, while inflation decreases the purchasing power of retirement earnings.

As a result, the gap between retirement savings and maintaining a desired lifestyle continues to widen, driving retirement planners to look for other solutions.

Independent and proactive investments in private markets stand out as a viable way to bridge the gap and ensure a stable financial future to be able to face these difficulties.

A growing ageing population and traditional retirement systems

Although living longer presents significant healthcare milestones, increasing average lifespans push retirement institutions to the limit, leaving many seniors without adequate financial support.

According to the United Nations, the number of people aged 65 years or older worldwide is projected to more than double, rising from 761 million in 2021 to 1.6 billion in 2050.

Additionally, the number of people aged 80 years or older is increasing at an even faster rate. Extending working years to secure a decent retirement becomes an unavoidable reality for many, and with inflation added into the mix, the real value of retirement income gradually reduces.

Retirees eventually become more susceptible to financial instability as the gap between their retirement income and the costs of maintaining a well-earned lifestyle grows with the rise in costs of living.

Financial literacy and independent retirement planning

In light of market fluctuations and lifestyle changes, proactive planning has become a must to maintain the desired standard of living in retirement. Proper financial planning can support individuals’ unique needs and help them make prudent investments to provide a steady income throughout their golden years.

Financial literacy plays a vital role in enabling proactive retirement planning. In the Arab region, the average financial literacy rate is around 30.7 per cent. When compared to the global average of 33 per cent, this presents a significant challenge to solidifying adequate retirement incomes, as individuals might start saving or investing for retirement much later in their careers.

For a closer look, a 2022 survey by Friends Provident International found that around 45 per cent of UAE residents have not started saving for retirement yet, even though 63 per cent of residents hope to retire by 60 years of age. Additionally, 40 per cent of UAE residents will only start saving for retirement 10 years or less before they reach their retirement age.

Private market investment solutions

Private markets offer a plethora of choices outside conventional investment options like stocks and bonds. They include alternative assets like real estate, private debt, and private equity. These investments have the potential for higher returns and tend to perform better than public markets, particularly in times of high inflation, thereby helping shield retirees from the effects of growing living expenses.

Rent yields, profit distributions, and other sources are some of the main benefits of investing in private markets as they provide a regular stream of consistent income.

Furthermore, the value of these investments frequently rises over time, adding to the overall worth of a retirement portfolio. Individuals can build a solid financial foundation that helps them weather market and economic turbulence by diversifying their investments in private markets.

Private market investments have already been exemplified, as more than 44 per cent of regional investors are planning to increase their interest in private equity in the Middle East as they look to diversify more by raising their allocations in alternative assets.

Seek expert financial advice before execution

Private markets are full of opportunities, but investors need to tread carefully and seek professional, unbiased advice. Professional financial advisors help individuals navigate a complex environment to make informed decisions that match their unique financial objectives, risk tolerance, and retirement plans, focusing on the long-term perspective.

Additionally, financial advisors can help individuals adopt certain behavioural tendencies that facilitate a ‘retirement mindset’ to increase the likelihood of saving or investing adequate amounts for retirement.

According to a collaborative industry report, four “optimal” behavioural features are evident in those who find it easier to prepare for retirement, including high optimism, high future orientation, high financial literacy, and reward orientation (as opposed to risk orientation).

Summing it up

Overall, independent and proactive retirement planning is more crucial than ever due to the growing disparity between retirement income and the costs of sustaining a desired lifestyle.

Investing in private markets offers the chance to secure consistent income streams, guard against inflation, and achieve larger profits.

Investors can minimise the distance between retirement and a secure financial future by embracing diversity and seeking professional guidance when navigating the intricacies of private markets.

The writer is the founder and CEO of The Family Office.