Introduction: The Importance of Expat Retirement Planning
Globalization, the pandemic and remote working have fueled a recent, significant rise in expatriation.
It’s not just about seeking better job opportunities; many choose this life for the love of travel, exposure to different cultures, or even just a taste of adventure.
Yet amidst all the exhilarating prospects, there lies a critical aspect often overlooked: Expat retirement planning.
Hampton Bridge are a professional offshore financial advice company and we feel it is our duty to help guide our clients through the maze of international financial planning, and expatriate pension options whilst giving expat retirement planning tips, taking. into account the expatriate retirement lifestyle and managing healthcare in expat retirement.
Understanding the Expat Retirement Planning Landscape
Expat retirement planning is a pressing necessity. It demands early and meticulous planning.
Unlike nationals, expats typically don’t have the safety net of a state pension scheme to fall back on.
Social security for expat retirees has its limitations. Therefore, they need to create their cushion, and the earlier it’s done, the thicker this safety net gets.
Long-term financial security for expats is hopefully what we will help install in the minds of some of you today, and this may come in the form of just starting off with a simple expat retirement planning checklist.
Enter the financial advisors, who can help you navigate the complex maze of expat retirement planning.
They can provide expert advice on the best expat retirement planning and expat retirement savings strategies tailored to the individual’s needs and aspirations.
Economic Stability for Expat Retirement Planning
One of the significant factors influencing expat retirement planning is economic stability. You must consider the financial climate of your host country, their home country, and other nations where you may retire.
Expat retirement planning for different countries is a crucial factor that shouldn’t be overlooked. Look at what are considered to be the best retirement destinations for expats. Tax considerations for expat retirees can vary from country to country and what nationality you are are.
Lifestyle Preferences
Another important factor is lifestyle. What kind of life do you envision for yourself during retirement? The answer would significantly influence the steps and procedures you put in place for your expat retirement planning.
Health Care Considerations
Healthcare is another critical aspect. With advancing age comes increased health-related expenses. Expats need to ensure that their retirement plan adequately covers these future costs.
Financial planning for expats abroad places a critical role in this and may impact your expat retirement investment options.
Expat Retirement Planning: Making the Right Choice
There are so many pension plans available for expats, which is why I have written an international retirement planning guide below and on many of my blog articles.
It’s crucial to understand the options to make the best choice for your retirement planning. Let’s break this section down so we can see what all the available options are:
- State government pension
- Domestic personal pension plan
- Offshore savings plan
- Index fund investing
- Capital Guaranteed Index investing
- Portfolio Bonds /Investment Platform
State Government Pension?
Generally speaking, it is good, sound advice to keep up with your payments towards your government state pension. Often the benefits far outweigh the cost.
Access to health care and other services may no longer be available to you if you do not keep up with your social security payments. Depending on your country of nationality, this is something that needs very careful consideration.
Most importantly, you must understand that very few government schemes will deliver you the retirement that you desire.
Contributing to a state government pension as an expat can lead to tax implications. Depending on your home country and country of residence, you may face double taxation, thus retirement abroad advantages and disadvantages
Residency requirements and eligibility criteria vary among countries, you will undoubtedly have expat retirement visa requirements which you must plan ahead for.
Some countries require expats to maintain residency for a specific period to be eligible for pension benefits. Failing to meet these requirements can result in loss or reduction of pension entitlements.
State government pensions often have limited investment options compared to private schemes. You may not have the flexibility to choose specific investments, affecting the potential growth of your pension funds and overall returns.
Contributing towards a state government pension as an expat exposes you to currency fluctuations and exchange rate risks.
If the currency of your pension fund’s country depreciates against your home currency, it can reduce the real value of your pension, however, the reverse situation can work very much in your favour.
State pensions may have strict withdrawal and contribution rules that may change over time. Factors such as age, eligibility, contribution rates and other benefits and restrictions need to be considered. In 2023 we saw major pension reform in France, and we can realistically expect this to happen in more countries over the next few years.
Domestic Savings/Pension Plan: Unraveling the Benefits and Drawbacks
Some expats choose to continue using their domestic pension plan from their home country when moving abroad, accounts such as Aviva, Generali or Fidelity, but is this always the right choice?
Like your government state pension, this question isn’t cut and dry and requires careful consideration of various factors, such as taxation, currency risk, and access to funds when. we are conducting our expat retirement planning.
One of the primary benefits for expats continuing with their domestic pension plan is the familiarity and simplicity it provides.
Managing your savings in a financial system you understand can save you a significant amount of stress and potential pitfalls. Sticking to your domestic pension plan ensures continuity in your contributions.
However, in very few cases, maintaining your domestic pension plan when living overseas rarely leads towards tax relief on pension contributions.
When you invest offshore you are now in a whole new world of tax-free growth, which over the years can have an enormous impact on your investment portfolio.
Do not underestimate the tax advantages of living overseas.
One significant drawback that can come with a domestic pension plan is the risk of double taxation. This can occur when both your home country and the country you’re residing in demand tax on your pension income.
Another potential drawback is the restricted access to your funds. This can be especially problematic in emergency situations where you might need immediate access to your savings and again, currency risk is also a serious concern for expats using domestic pension plans.
While domestic pension plans offer certain advantages, they are not the only option available and are often not the best. Some expats may find that transferring their pension to a Qualifying Recognised Overseas Pension Scheme (QROPS) or an International SIPP (Self-Invested Personal Pension) provides more flexibility and potential tax advantages towards their expat retirement planning.
Unlocking the potential of an Offshore savings plan?
One of the avenues you might be considering is an offshore savings plan, which comes with its unique set of benefits.
Offshore savings plans provide a level of flexibility that is attractive to the global citizen.
These plans allow you to change your investment strategy as your circumstances change – all without the typical constraints of a domestic savings plan.
Typically savings plans will invest in a range of mutual funds of varying quality, so it is important for your advisor to be picking the highest-performing and most relevant funds for your situation.
You need to choose from a range of expat retirement savings accounts which have an extensive fund range of 100-200 funds in various currencies. You should be invested in equity funds (stocks and shares in companies) and you should have exposure to all the major global markets.
One of the biggest attractions of an Offshore plan is that it offers tax-free growth, meaning you’re not taxed on the growth of your savings.
If you compound this extra, free money over a long period of time, the potential for gains can drastically alter your retirement lifestyle. This is the key buying point for most investors when they are speaking to an advisor about their expat retirement planning.
Offshore savings plans can be accessed from anywhere, providing an essential financial lifeline no matter where you find yourself you have the ability to invest in multiple currencies which can protect against fluctuations.
While flexibility is a significant benefit, it can also lead to lack of discipline in your savings strategy. If you’re not careful, the freedom to change your savings and investment strategy can lead to reactive decision-making and it can also increase your charges if you reduce your premium.
Often the flexibility promised by the plan and the advisor is not correct.
Do not over-commit yourself to long-term plans and make sure you fully understand the charging structure.
Many advisors sell long-term plans packaged as an 18-24 month investment followed by complete freedom for the next 25 years, this is often not the case. This is where your investment advisor needs to offer you expert expat retirement planning advice solely aimed at helping you.
Profit from the Pros: The Benefits of ETF Index Investing
In the dynamic world of investing, Index Funds or Exchange Traded Funds (ETFs) have taken center stage, promising a potent mix of flexibility, diversity, and affordability.
By nature, index ETFs are designed to mirror the performance of a specific index. These indices can be broad-based like the S&P 500 or sector-specific like the Health Care Select Sector which the SPDR Fund range offers.
This investment structure offers investors exposure to a limitless variety of different companies or industries, minimizing the risk associated with investing in a single stock or sector.
ETF index investing is an affordable alternative to active management, with typically far lower expense ratios.
Many index ETFs pay out dividends to investors based on the income earned from the fund’s underlying assets. These dividends can be a nice additional income stream for investors.
ETF index investing offers a unique vehicle for diversification, affordability, and accessibility. Whether you’re a seasoned investor or just starting, the benefits of ETF index investing are undeniable, offering a solid foundation for your investment portfolio.
Learn more about ETFs and index investing here.
If ETF Index investing sounds like the right decision then you will need to hold an international brokerage account or portfolio bond to house your ETFs such as Access Plus or Ardan.
S&P 500 – Capital Guaranteed Investment Account
This account allows you to invest on a regular basis over a 10-15 year period. Your money is allocated towards the S&P 500 Index, with a built in capital-guaranteed facility. Access to your capital is available but please speak to your advisor about the terms and conditions.
The capital guarantee starts at 100% over a 10-year period and then 140% over a 15-year term. Offering a guaranteed return on investment is a very attractive area of expat retirement planning.
Your money is invested in the S&P 500 index, which has historically grown at over 10% a year since its inception. The S&P 500 is an index of the 500 largest companies traded through the US stock exchange. Amazon, Microsoft and Apple all participate in the S&P 500 index.
This particular investment is administered by a company called Investors Trust who is an international investment company with offices and access to multiple jurisdictions. You can watch more here.
Portfolio Bonds/Investment Platform: A Flexible Approach to Investing
A Portfolio Bond or brokerage account might just be the flexible friend you need. It’s an investment bond that allows the holder to invest in a plethora of assets, including mutual funds, stocks, and bonds.
In most jurisdictions, the investment can grow tax-free, allowing your wealth to compound over time.
Here is an example of an Investment Platform that Hampton Bridge provide.
This Bond, or Platform is known as “Open Architecture” meaning that you can literally hold any form of investment within it. Expat retirement planning should be about aiming for a broad range of ETFs and Mutual Funds and something uncorrelated to the market such as a Hedge or Futures Fund.
The Portfolio Bond/Investment Platform is just an account/wrapper that is empty when purchased. The choice of the investments that are put inside it will determine your success.
Here is an excellent fund by Veritas and this is their Global Focus Fund. It is the job of your advisor to bring you the highest-performing and safest investments.
Conclusion
Expat retirement planning may appear complicated, but it’s an essential one and with the correct advice it just needs a little time and attention. With the right knowledge and professional advice, you can navigate the complexities and secure a comfortable retirement.
Frequently Asked Questions (FAQs)
What is the first step I should take when researching my expat expat retiremnt planning?
The first step in retirement planning as an expat is understanding your financial needs and goals for retirement. It involves assessing your current financial situation, estimating your retirement costs based on your desired lifestyle, and then developing a plan to reach your financial goals.
How does being an expat affect my retirement savings?
Being an expat can affect your retirement savings in several ways. You may be eligible for different types of retirement accounts or pension schemes, and you may also be subject to different tax regulations. Currency exchange rates can also impact the value of your expat retirement planning.
Can I contribute to a pension plan in my home country while working abroad?
This depends on the rules of your home country and a specific pension plan. In some cases, you may be able to continue making contributions, but in others, you might not. It’s crucial to check the details with a financial advisor or pension provider.
What is the role of a financial advisor with my expat retirement planning?
A financial advisor can play a crucial role in retirement planning for expats. They can provide advice on savings and investment strategies, help you understand the implications of different pension schemes, guide you through the complexities of currency risks, and help with estate planning.
