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Retirement Planning – How Crucial Is It?

Whenever we talk about investment goals, things like buying a house, getting married, children’s education, or a world tour come to our minds. Retirement is one topic that most of us are not willing to talk about, primarily because ‘there is a lot of time yet’! Also, many youngsters believe that by the time they retire, they would have automatically saved up enough to live a financially independent life. We all hope that it does. But, hope alone is not sufficient especially at an age when you would rather be sitting on a nice tropical beach with the warm breeze soothing your skin or in a cold mountain watching the snowfall or traveling around the world. This needs careful planning. In this article, we will look at the importance of retirement planning and why you should start at a younger age.

Why Retirement Planning is Crucial

Retirement Planning

If you have ever wondered why you should plan for retirement, then keep reading:

You will live longer than people did before

Do you know what the average life expectancy is today? Nearly 80 years. If you retire by 60, you have 20+ years of retirement and THAT is a long time. It also means that if you stop working by the time you retire, your income will stop and you will have to live off your retirement savings. Further, this figure is an average which means that if you are lucky, you might live way beyond the average. Also, old age is usually synonymous with health problems and regular doctor visits. These can be cost-guzzlers too.

Therefore, it is important that you start planning for your retirement and create corpus which can help you live the life of your dreams in your golden years.

You cannot work till you die

Many people live with the notion that they will work beyond their retirement, until the day they die. While it might be ideal for many people, it is not possible to maintain a high level of professionalism forever. As you grow older, you will slow down and your brain and body will not function the way they do now.

Inflation and overall costs will probably increase

Inflation and overall costs

The living is about hoping for the best and preparing for the worst. Most of us live with the hope that the future will be better and they will be in a comparatively stronger financial position as time goes by. That is hope. Let’s talk about preparing for the worst now. What happens if inflation rates keep rising and costs keep soaring? How do you think you will manage your retirement life with all those costs and no source of income? This is another reason why retirement planning is crucial. It is also important to stick to your retirement plan and resist all urges to dip into your retirement savings for that flashy car or a world cruise.

Also Read: What is Inflation and how it affects real estate

Remember, have a plan and work on it dedicatedly. Also, keep the candle of hope burning and if costs do go down, then you will be a super-rich oldie!

Rather be a benefactor than a beneficiary in your family

Retirement is also a time when many people desire to be involved with their children and grandchildren. While living together might not always be possible, if you can afford to take a quick flight to wherever they are for their birthdays and shower them with love and gifts, it will mean a lot to your family and your bond with them will strengthen.

After working hard all your life, you would like to maintain your position as a giver than a receiver, right? Think about a scenario where you are dependent on your family. Doesn’t portray as a pretty picture, does it?

Start planning for your retirement and you might even be able to leave behind a memory of a loving and giving parent and grandparent.

It’s the time of your life to start checking off your bucket list

Most of us are so busy during the working years that we don’t have time to do things that we really love. Add to it the responsibilities at home, growing children, installment payments, aging parents, the list of things that keep you away from your dreams is virtually endless. All of these changes by the time you retire. The job is over, children have grown up, and you have all the time in the world to do things you wanted to.

The only thing to you need to ensure is that you have enough retirement savings so that you can do all the things that you were busy putting in your bucket list all your life. Be it traveling the world or going on a six-month cruise or spending days with the Eskimos in their Igloos – if you have planned for it, you can do it!

Finally, remember that there is no better time to start planning for your retirement than today. The younger you start, the easier it is. If you start saving for retirement before you are the primary breadwinner of the house, you can afford to set aside a considerably large portion of your income towards your golden years and allow compounding to display its powers. Stop giving yourself excuses that you don’t have enough money to set aside for your retirement. The fact is, that retirement is the part of your life which needs planning and time. Prioritize it and create a retirement plan today!

Affordable housing options for first-time buyers

Initially, real estate developments in cities like Dubai and Abu Dhabi were primarily focused on luxury and high-income groups. However, since 2014-15, there has been a sudden rise of affordable housing project launches due to a decline in the demand for luxury properties and a sudden increase in the demand for affordable homes. In March 2017, the Dubai Government approved a low-income housing policy with the aim of providing housing units to the low-income working class and also renovate some old areas of Dubai. Since the government is taking steps to boost affordable housing development by incentivizing the developers in various ways, there are many affordable housing options for first-time homebuyers in Dubai. As a result of this focus, the southern districts of Dubai – where the majority of the affordable developments have been initiated and started witnessing a growth in the population of working-class professionals.

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What is Inflation and how it affects real estate

Inflation is one of the biggest concerns for investors. This is because inflation rates can affect different assets in different ways. As a prudent investor, it is important to understand inflation and the effects it can have on various assets. Today, we will explore inflation and talk about its effects on real estate.

What is Inflation?

Inflation is a continuous increase in the prices of services and products in an economy over a period of time. In other words, inflation is an increase in the prices of all products and services – not just a few. This increase in prices implies that for every unit of currency spent, fewer goods and/or services can be purchased. Hence, inflation leads to lowering the purchasing power of money invariably impacting the demand and supply of such goods/services. Usually, with the growth of an economy, consumers and organizations spend more money on buying goods/services. In a typical growing economy, the demand is usually more than the supply of goods. Therefore, sellers raise the prices leading to inflation.

Inflation is measured by tracking the speed with which the prices of a basket of products increase in a given period of time. In the UAE, the Federal Competitiveness and Statistics Authority (FCSA) collects around 334 different categories of services and goods, and calculates the cost of this bucket to arrive at the Consumer Price Index (CPI), also called headline inflation.

Impact of Inflation on Real Estate

In the UAE, housing and utilities have the highest weight of around 34%. In addition to it, the impact of inflation is on the purchasing power of people and also there are many ways in which inflation impacts real estate.

Also Read: Benefits & Risks of Real Estate Crowdfunding

Cost of Materials

Construction of a building involves a wide range of materials like steel, wood, copper, glass, concrete, etc. In an economy, if there is inflation, then the prices of all these materials would increase too. Further, labor will also be available at higher rates. This means that the construction company would spend more to build an apartment complex. In order to offset the additional costs, the developer increases the sale price of the house. Therefore, inflation makes new houses more expensive reducing the supply of new constructions. This invariably leads to an increase in the price of existing houses.

Costlier loans

Another setback of inflation is that commercial banks start increasing the interest rates. This is because inflation corrodes the value of money, hence lenders increase the interest rates to make up for their loss. However, this also means that borrowers, who are already facing a tough time meeting costs (due to increased prices) are expected to pay more interest on their housing loans. Add to it the increase in the price of properties, buyers are skeptical about buying new properties.

Talking about developers, there are many developers who rely on bank finance for the completion of their projects. With loan rates increasing, they experience an overall increase in the cost of construction and have to increase the price of the ready units to cover up for their losses.

Rentals increase

Since the cost of borrowing increases, people tend to rent a property rather than buy one. Also, the landlords can always increase the rent to compensate for the rate of inflation. Since the demand is more (as many people avoid purchasing property in rising inflation), tenants are willing to pay a little extra rent rather than bear the expensive home loan.

With the landlord’s perspective, this has a positive effect on the price of the property. A house generating higher rent is usually sold at a higher price as compared to the one that doesn’t.

How buying a house can protect you against inflation?

Think about it. During inflation, the prices of all products and services increase too, including the prices of properties. Therefore, once you buy a house on a mortgage at a fixed rate of interest, every year, you actually pay less (since the money devalues with inflation). Also, the price of your property increases to make it a win-win situation for you.

Real estate investors, who purchase a property with the purpose of leasing it get the best deal. They purchase a property on mortgage and immediately lease it to tenants. The rent received by them is used to pay off the installments and by the end of the loan tenure, they virtually have the house (with its increased price) as an addition to their portfolio with minimal investment.

Something for Investors

With the evolution of options like Real Estate Investment Trusts (REITs) and Real Estate Crowdfunding, investing in real estate has become easier even for the small investor. While most investment plans target to achieve inflation-beating returns, investing in real estate can truly be a great way to allow your money to grow with inflation.

Summing Up

Like other products and services, inflation certainly has an impact on the real estate sector. However, many long-term property investors find inflation to work to their advantage since it allows them to fetch a higher rent and selling price. It is important to assess your investment goals and time horizon carefully before entering the real estate sector. You might talk to a financial advisor about the same.