The Finance

Expatriate tax and finances

Retirement - It's a numbers game!

We all presume that we will retire.

In fact expatriates, above all others, appreciate the importance and luxury of being able to retire as they are faced with the reality of a world where retirement is simply never an option.

The environment in which the majority of expatriates live allows them the insight to realise just what their lives would be like if they didn’t have the economic power they do - and a raised income that allows them to make sure that this is never an issue for them. However, how many actually take it seriously?

Here are some numbers to consider:

If you are 30 years old today and plan on retiring when you are 60 (something fast becoming a thing of the past ) you have 30 years to put money away. Saving $6000pa, or just $500pm, with an estimated return of 10% (increasing contributions in line with inflation each year) will give you a lump sum of $1,437,588 - an admirable amount.

Delaying the plan by just one year and deciding to start putting $6000 aside into savings next year, with the exact same returns and conditions, will deliver a lump sum pay out of $1,288,603. A difference of $148,985 - For just one year’s delay!

This truly demonstrates the need to start thinking about tomorrow – today. Especially as an expatriate, where preferential tax treatment, raised salary and increased investment options makes the most ambitious of retirement plans, feasible. It is estimated in the UK alone up to 70% of people currently have inadequate plans in place for their retirement, and with state benefits being called into question ever more, it is truly down to the individual to be responsible for their own future. Figures on expatriate plans are harder to come by due to their wider diversification, but there is nothing to indicate that it is any different to the situation onshore. Yet how to get this all off the ground?

The undisputed certain way to accumulate wealth is to use a strategy like that outlined above, small regular contributions. Yet, this message gets over-looked by investors seeking hot tips. People are easily distracted by economic headlines, which we should expect to see a few more of as the current Bull market run faces its first real set of challenges with the US housing market sending a few jitters around the world.

Yet we still get excited about the FTSE soaring to new heights, and panic at the slightest correction. We are tempted to think that commodities or biotech stocks are the sure fire way to wealth and that actively managing our portfolio is the key to taking charge of our own financial destiny. However the truth is that the vast majority of people never achieve wealth by doing any of those things.

You don’t get rich by trading heavily or by betting everything on one hot stock. The guaranteed road to wealth is simply to buy assets on a regular basis with very small amounts of money—and to do it for a long time. Make full use of professional fund managers and mutual funds, mitigate risk, capitalize on the increased selection of financial instruments such as hedge funds and property based investments that you have as an offshore investor and above all, focus on the long term goal, not the short term volatility.

Planning for two:

This model is very much based on the presumption that the character in question is a man, for women, the story is far more daunting:

85% of women die alone, that is to say that they are widows, divorced or unmarried. They have longer life spans and shorter economically productive years (this is not meant to cause any offence, just relay statistics).

This means that on average, women today at retirement age, have half the savings of men. Perhaps the most telling statistic is cited by the American Association for Retired Persons: Although only 12% of all elderly people live in poverty, 74% of them are women! This makes appropriate planning and effective structuring more vital than ever to couples. It’s ok for guys to live our retirement in a blaze of glory, but it is our partners and wives who will be asked to truly carry the cost of failing to plan properly.

The solution is to evaluate your finances today and discover what you can do to ensure your retirement is both viable and that your lifestyle can be maintained. Your cost of living does drop after retirement, children have flown the nest, mortgages are largely paid off, insurance costs are nowhere near as high etc. However, we’d all like to be able to know that we can live for fifteen or twenty years after leaving work without having to cut corners or release the equity held in existing estates, and maybe even leave a little for the next generation.

If you don’t have any plans for tomorrow, today, then take stock and sit down to evaluate your current and future cash flows. As an expatriate you only need to look out of your window to effectively look back in time and see what the reality of a society without the luxury of planning for retirement is like.

All future correspondance with be handled directly by the author. We will have no involvement in your financial matters or queries.