Importance of long-term savings

[LRE]

By Richard Hextall, Special to Gulf News
Published: August 14, 2009, 22:53


In last month's column, I highlighted key milestones which people should be aware of for financial planning purposes. There is, perhaps, no more of a significant milestone than retirement, and that's why I'm looking at pensions, and the importance of long-term savings, in today's column.

In general, people are becoming more aware of the importance of saving for their retirement. Life expectancy in most parts of the world has increased and so our post-retirement years are longer than ever before, which makes providing for our retirement a greater challenge and evermore important. In spite of these facts, it is worrying that many people still don't appreciate the importance of long-term saving.


Whilst we are all personally responsible for managing our finances, I believe that banks and other financial institutions have a duty to highlight the importance of saving, and especially, saving towards retirement. The simple fact is the earlier that we begin to save for retirement, the better chance we all have of achieving our savings target and being financially comfortable in our retirement.

As people are becoming more financially aware, they are turning to financial advisers and other professional firms for guidance and assistance with developing savings plans which suit their individual needs. Seeking professional advice is sensible, especially when it comes to retirement planning, as there are numerous pension products on the market. The schemes cover a wide range of investment approaches and styles and might invest in a variety of asset classes.

Expatriates often have additional considerations as they often do not have the support of company based savings or retirement schemes and so need the discipline of taking action themselves. It's also important for expatriates to consider how their earning capability has risen and, without the burden of income tax, they should have surplus income. At the very least, they will require a more flexible product which should allow for switching of the investment approach or premium alteration and, of course, there has to be availability in all major currencies.

As well as being tailored to an individual's circumstances and financial needs, pension products should be straightforward and easily understood and it is critical that they are transparent on charges. It is well worth spending a good deal of time discussing charges of any investment product with your financial adviser. They should be in a position to give you all the information you need and be very clear on any commissions or fees that they earn.

It's never a good idea to have all of your eggs in one basket and, as with all investments, diversification is an important strategy. Your financial adviser should offer you a pension scheme with a good spread of investment plans across asset classes and investment styles. Investment plans are built to accommodate change and structured to ensure that it's possible to have a diversified investment strategy without having multiple plans. A good, diversified scheme should protect you against dramatic downward swings in the value of your product.

So the key advice to consider is, first and foremost, that it is never too early to start saving for your retirement. Second, do seek professional advice from an independent financial adviser or from your bank, but be very clear on any charges, costs or commissions that they charge. Finally, its generally good advice to consider a diversified investment strategy, one that invests across different asset classes and perhaps in different geographies. With these principles in mind, your retirement plans should be a lot easier to realise.


The writer is head of personal banking, Lloyds TSB Middle East, Dubai. Opinions expressed here are his own and do not necessarily reflect the views of Gulf News.

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