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Retirement Planning for Expats

Updated: Oct 7, 2022

When someone leaves their place of birth or country, this action has many implications from a personal and financial perspective. This article is designed to discuss the financial aspects specifically relating to pension provision while also recognizing the personal sacrifices made when you become an expat.

Most people rely on their countries’ state pension arrangements or various other pension arrangements which relate specifically to the country where they came from. Almost certainly when you become an expat, these benefits are lost, and it is unlikely you can contribute into these schemes while you remain an expat. Even if you only spend a few years outside your home country during your working life your retirement benefits could be considerably affected.

The new country where you decide to live and work is unlikely to provide pension benefits similar to your home country unless you immigrate or work in one country for the majority of your working life which is not the norm for most expats who tend to move around.

While the majority of people would consider the above points the negative side of being an expat, there can also be advantages for those who plan and act to make sure they are catered for in retirement.

The downside of state sponsored pensions is they offer very little flexibility or choice and minimal control of your investments. With most nations being in debt due to Covid and the ‘Global Financial Crisis’, these schemes are becoming even less attractive as the retirement age is pushed back and the benefits are more heavily taxed.

Expat Options:

For the financially wise expat or someone who chooses to hire the assistance of a qualified retirement planner, there are many excellent options for expats to make sure they build up a sufficient retirement fund.

1. Property

This has often been a favorite investment type for expats whether it be a ‘buy to let’ in their home country or a villa or apartment in the country where they are working.

A property investment in your home country not only provides you with a rental income but it also means you protect yourself by being ‘in the market’. If your home market does very well, you benefit and later can sell your property investment if needed to then buy your ‘retirement home’.

Many expats will buy multiple properties either in their home country or in another market where they can get good rental returns and as they near retirement may sell some of the properties to boost their retirement fund.

2. Retirement Fund

While expats will typically not be able to contribute to ‘retirement funds’ in their home country, there will be many suitable ‘offshore arrangements’ which if correctly set up and managed will be an ideal way for an expat to save for retirement.

These ‘offshore arrangements’ are generally provided by banks, life insurance companies and platform providers. These arrangements tend to be based in extremely secure and well-run financial centers and carry a high degree of protection for investors. Offshore retirement funds will be significantly more flexible than ’state schemes’ giving you more flexibility when it comes to choosing levels of contribution, choice of investments and when to take the benefits.

While offshore schemes maybe marginally more expensive than onshore for certain clients the added value they provide, and the better administration and support still makes them a sensible option.

3. Cash

Most financial coaches who work with expats will normally recommend that clients keep between 6 to 12 months of their salary in cash to cover emergencies, redundancy, and other unexpected events which may affect your finances.

The amount of cash you need will be based on your personal circumstances and can be discussed with a financial coach. Dependent on where you are working as an expat should affect your decision as to whether to keep this cash in a local bank, your home country bank or alternative offshore bank. Protecting your emergency fund is very important and if you are not sure where to hold this cash get advice!

4. Speculative Assets

Common sense will generally mean that for most of us we would not consider speculative assets until we are sure we can already meet the needs of our retirement fund with more secure and stable assets, property, stocks, bonds & investment funds.

Speculative assets which you may want to invest into once you have your retirement fund covered are crypto currency, start up business’s, foreign exchange trading and leveraged or speculative trading.

However, the reason why a financial coach would not recommend any of the above is the value in the future when you retire is not predictable and while you could make a significant return you could also lose everything making them unsuitable for retirement planning.

When to start your ‘retirement plan’?

There is no easy answer to this question, and it will depend on your circumstances both personal and financial. For new expats, they will want to delay saving until they have settled into their new home country and job before making any long-term commitments.

Clearly, the facts tell us that the earlier you start saving for retirement the quicker you will reach your ‘retirement goal’ in terms of fund size and age. The earlier you start will also mean the less you will need to contribute as your money will have more time to grow and generate returns for you. [See table]

Planning for retirement for most of us is a ‘long term journey’ which is likely to involve many different investments be it property, funds, retirement plan, company scheme, cash or even share options.

For expats, lives will change multiple times during their working lives and any plans will need to be highly flexible, and investments should be properly spread across all sectors for diversification to reduce risk.

For the financially qualified, it will be possible to manage your retirement plan on your own but for most of us, this will not be possible and it is recommended to get regular advice and support in terms of consultations and reviews to make sure your plans are on track.

Two options in getting advice on retirement plan:

a. You can either hire a financial advisor who will work with you as long as you are both happy with the arrangement. Generally, they will be available to you at any time to answer emails or to take a call to discuss any questions you have or changes they might recommend. Normally for this type of service the advisor will take a fee from your investment which will be paid to him/her until the arrangement is ended.

b. Alternatively, for those who perhaps enjoy managing their money and are reasonably financially literate they perhaps will not need someone on a ‘full time basis’. Instead, they would rather speak with a ‘financial advisor’ once a year or when required to check on the decisions they are making and to give them ‘peace of mind’ they are on the right track. For this basis the advisor will normally charge per hour for the consultation, and they will have no responsibility for the day-to-day investment decisions.

The advisors at Astra Group have decades of experience across different continents advising clients when it comes to retirement and can offer either a fee-based service or a ‘per hour’ consultation based on your preference.

Retirement Planning for expats is complex and will involve much planning and organization. It is likely you will need to manage and understand the benefits you have already accrued in your home country before you became an expat as well as the laws in the new country you are now living in. For more mature expats they may have multiple pensions in different countries where they have worked which increases the complexity and time and work needed to manage all of them. This is where Astra advice comes in, to help you ease out, navigate life until you reach your retirement age, and achieve you ideal retirement lifestyle.

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