The first step of planning for your retirement is identifying your retirement goals. A comprehensive financial plan is then created to get there. This includes:
You can start your retirement planning at any point in time; the earlier the better.
The key is to identify what you want your future to look like. Retirement planning is a holistic approach that doesn’t just cover you financially, but helps you make better lifestyle choices to achieve your ideal future.
There is no better time to start your retirement planning than today, but there are some key factors to consider:
1) Objectives -
Having a clear understanding of what you want in life, and what makes you happy, is key to identifying your retirement goals before you begin your retirement planning journey. Whether your objective is to spend more quality time with your family, being able to make your own decisions or moving to a Caribbean island, it's easier to plan your life around what's important to you once you've identified it. This will help you focus on what you need to do to make it happen.
2) Timeline -
It is never too early or too late to start thinking about your retirement, but planning your finances from an early age will give you some advantages. Not only will it help you earn more through compounding, but could even mean retiring earlier. A comprehensive plan should be based on an analysis of your current financial position, income, expenses and future life plans. A financial planner can help you identify your life goals and plan your finances around them.
3) Risk tolerance -
Not everyone has an appetite for high risk. A financial planner can help you understand what your risk tolerance is and how comfortable you are with investing. Generally, the younger you are when you start your retirement planning, the higher appetite for risk you can have as you have longer to navigate market fluctuations.
4) Investment choices -
Investment choices are an extremely important part of retirement planning. As an international executive, chances are you’re a high earner, but is it wise to just save when you can make your initial savings work to generate more savings for you? Understanding the types of investments best suited to you and starting to invest earlier on in life will help you reach your retirement goals sooner.
5) Inflation and outside factors -
It is extremely important to consider inflation and other external factors that can affect your retirement plan. Inflation can diminish your purchasing power in retirement while increasing the cost of what you need and can seriously hinder your retirement savings. It could also decrease the value of your investments. Working with a financial planner to protect your hard-earned wealth from inflation, taxes and other external factors becomes a very important part of your overall retirement planning.
When your working years come to an end and your employer’s no longer subsidising things like healthcare, phone bills and wellness memberships; how much will you really need to cover everything in retirement? Conventional wisdom says you’ll need roughly 70-80% of what you currently earn/spend. Research shows most of us are unaware of this and consequently unprepared.
According to Forbes, about 10,000 baby boomers in the USA reach retirement age every day. 25% of them have no retirement savings. And this problem is not unique to the USA. There’s a projected $400 trillion global retirement savings gap by 2050.
Retirement planning aims to help you make the most of your earning opportunity as an international professional so you can achieve your ideal future.
To answer the question, it’s never too late to start your retirement planning.
However, the age you begin can have different implications and requirements:
Age 21 - 35
Starting your retirement planning in this age range means that your investments will have plenty of time to mature. Investing sooner will help you reap more benefits from compounding. Compound interest works best when you have time on your side. It allows for your income to self-generate more income through interest over time, meaning the overall amount you need to invest would be smaller than investing when you’re older.
Age 36 - 50
These mid-life years, if planned correctly, can be the best saving and interest-earning years and can make a considerable impact on your retirement planning.
People at this stage of retirement planning can take advantage of their higher income to start investing higher amounts. Compounding truly starts to gain traction as you add to your savings in this phase. Having the right financial planner to advise you about what to invest in, risks and taxes is vital to protect your wealth whilst you’re accumulating it.
Life insurance cover for you and your family is also very important in this phase as it can protect you from unforeseen life events that could potentially hinder your retirement plan.
Age 50 - 65
By the time you reach this phase of life, you can take advantage of a lot of changes. Previous long-term debts such as mortgages have been paid off and your salary may be at an all time high as a senior international executive or business owner, which allows you to save an even greater proportion of your income.
Finally, making sure that you're covered with long-term care insurance plans helps you protect your wealth from unforeseen medical conditions or loss of employment that can have detrimental consequences on your retirement savings.
Retirement is an exciting prospect but you need to start thinking about it long before you plan to retire.
The first thing to do in retirement planning is to identify what you want to achieve in life and what makes you happy.
It could be sailing off into the sunset in the Mediterranean or spending more time with your family, either way you need to have a clear picture in your mind before you start ramping up efforts towards it, so that by the time you are ready to move into whatever you call this new period of life, you have a pretty good idea of what the possibilities and opportunities are.
A common mistake that senior professionals make in the run-up to retirement is focusing too much of their attention on ensuring they have enough money. It’s more important to think about what you really want to do with the rest of your life and plan your finances around your desired lifestyle.
Retirement is about focusing on the things that are important to you, by first identifying what those are. It’s about living a life of purpose. Retirement is not a 30-year long weekend or a permanent holiday. It’s just life, but it’s life on your terms (in fact the Japanese call it 'second life').
Retirement requires serious deliberation and you should start that process sooner rather than later.
Retirement planning for international professionals like yourself needs a holistic approach that not only helps you identify where you currently stand, but clearly states how you can reach your comfortable, and financially-secure retirement early.
1) Identifying your retirement goals -
People often associate retirement with money. Of course money is a major part of it, but retirement is mainly about living life on your own terms. It’s extremely important to identify what you want to achieve and what makes you happy before you start working towards it.
Different people have different priorities. Understanding what you truly desire in order to feel satisfaction, is key to a happy retirement.
Retirement planning helps you to take a step back and narrow down your goals, so you can make the right financial decisions that secure that ideal future for you and your family.
2) Analysing your current financial position -
Cash flow modelling can help you answer this question. This means working with a financial planner to understand your current spending patterns and how much is needed to support your current lifestyle and your desired lifestyle for the future. Its about answering the question - 'how much is enough?'. This is known as lifestyle financial planning.
Analysing your current financial position will also help you plan out how you can increase your savings and how much money you can start investing.
3) Understanding your income sources -
Retirement income can come from different sources. The tax implications of each of these income sources needs to be considered and altered accordingly.
Over what time period and by what percent will you use this income is equally important, and determining this in advance will help you protect your retirement income.
4) Investment planning -
Investment done right can help you speed up your financial journey and reach your retirement goals early. But it's important to consider the risks involved in these investments.
High risk investments, market volatility and inflation could have a negative impact on your portfolio and consequently on your retirement savings. Planning your investment portfolio based on your appetite for risk and getting expert guidance from a regulated financial planner is one of the key steps involved in your retirement planning process.
5) Planning for unforeseen life events -
Life is a beautiful journey, but unforeseen health issues can come up at any time and hinder your financial plans. These life events can eat into your retirement savings and throw you back by years financially.
Planning for such life events and making sure that you have the best, long-term insurance plans in place that can get you and your family safely out of these storms is another important step in your retirement planning process.
6) Managing your retirement income -
During your working years, you get used to getting your pay cheque every month. But what happens when you retire?
An investment strategy that was once a good fit for you, may not be the most profitable one for you after a few years. Identifying different retirement income opportunities and managing them with constant monitoring is a vital part of your retirement planning process.
7) Continuous monitoring of retirement assets -
Creating a retirement budget and then constantly monitoring your financial position and making required changes is an on-going part of retirement planning. This continuous monitoring helps you identify where you are deviating from the plan and rectify it before it’s too late.
A good financial planner will help you stay on track to achieve your ideal future.
Financial educator and best-selling author of 'Millionaire Teacher' and 'The Global Expatriate’s Guide to Investing', Andrew Hallam, talks about 12 steps of effective investing to enjoy the best possible retirement, so you never run out of money.
In just 3 questions and 12 steps you’ll discover how to make positive changes today that will have a positive financial impact on your retirement plan for the future.
So let's give it a go...
In how many years from now would you like to be financially free to retire?
5, 10, 20 years?
Write down your number.
How much money would you like to live on annually, once you’re financially free?
If you plan to live modestly, or in a low-cost country, your number might be relatively small – e.g., £20,000 pa.
If you have lavish tastes, or a desire to live in a high cost country, obviously your number will be bigger – e.g., £100,000 pa.
Write down your number.
Do you own property other than your main residence? (If not, skip to Step 4)
Rental income from property is an inflation buster – because rent rises in line with inflation.
If you own rental property, how much rental revenue per year could be generated from your property today, if it was mortgage free?
Write down that amount.
Then deduct 10% for periods of potential vacancy, and deduct your estimated annual maintenance costs as well.
What number are you left with?
For example – if you own 2 mortgage-free properties each generating £700 pcm in rent after all costs and vacancy considerations, you have an inflation proofed monthly income of £1,400, and an annual inflation proofed income of £16,800.
Write down your number.
What’s your annual shortfall?
When you answered Step 2 above, you wrote down how much you’d like to live on annually to be financially free. If you have rental income, would it be enough to cover the entire amount you want to live on?
If not, what’s your shortfall?
For example, if you want to live on £50,000 and you earn £16,800 from property, your annual shortfall is £33,200.
Write your number down.
Inflation, inflation, inflation.
Of course, unless income from property holdings covers everything you need to be financially free, your annual shortfall will actually be much higher than the number you’ve just generated.
Because of inflation…
What's your post-inflation income?
Here’s how to calculate your own post-inflation income gap – we can do the numbers for you if you prefer, talk to us and we’ll do all your calculations to get you on track.
What’s your number?
This is the annual amount of income you want to achieve to enjoy financial freedom when you retire.
As a senior international professional, you’re likely to have a more transient life than your friends and family back home, and this can lead to both financial challenges and opportunities.
Challenges include falling outside your home-country’s social support system, including any state pension provision…
Opportunities include potential tax-saving advantages, and greater income generating prospects…
Make positive financial changes today to benefit yourself tomorrow.
It’s all about working out if you’re on track to hit your magic number.
How much money will you need in stocks and bonds to generate your number without running out of money?
Have you heard of the 4% rule?
The 4% rule is a guide used to determine the amount of funds to safely withdraw from a retirement account each year.
This rule seeks to balance out providing a steady stream of income, while also keeping a healthy account balance that can grow, thus allowing income to be withdrawn for the whole of your retirement.
The 4% rate is considered a realistic rate, with withdrawals consisting primarily of interest and dividends.
Getting back to step #6…
How much money will you need in stocks and bonds to generate your number without running out of money?
Take your post-inflation income gap number from step 5 – for our example it’s £66,060.99 – and work out what that is 4% of …
£66,060.99 is 4% of a pension pot worth £1,651,524.70.
To get your portfolio goal size, simply multiply your post-inflation income gap number by 25.
Are you still with me? If not, talk to us…
We can help you through the numbers, that’s what we’re here for.
How much do you need to be saving and investing to hit your portfolio goal size?
Visit this compound interest calculator.
Enter the amount of money you have already saved or invested towards retirement in the Initial Balance field.
Enter 7% in the Annual Interest Rate field (annual average stock market return).
Enter the number of years into the Calculation Period field.
Enter the amount of money you are saving or could save in the Regular Monthly field and ensure you set it to deposit.
Assuming you wish to increase deposits in line with inflation, tick Increase Deposits Yearly With Inflation, and set the rate to 3.5% and the Compound Interval to Yearly.
Are you on track?
For our example, if we had a base amount of £100,000 already saved towards retirement, invested £2,000 a month for 20 years, assuming a rate of growth of 7% and increasing annual deposits by a 3.5% inflation rate, we’d be on track!
You can play around with some of the numbers – but not all of the numbers…
You can’t change your age today, meaning if you’re set on retiring in a specific number of years, that limits how long you have to save, and how long your wealth has to grow.
And you can’t change the amount you’ve already saved and invested.
But there’s plenty of good news…
Firstly, evidence shows that in the early years of retirement, retirees are more inclined to travel and enjoy financial freedom than later in life. Therefore, your requirement for such a large annual sum could alter downwards, meaning you may need less to retire comfortably than you thought.
Set and share your goals.
With a clear idea of the life you want to get and keep in mind, and an idea of what you need to save to achieve that goal, it’s time to share your goals.
Statistically speaking, we’re more likely to achieve the goals we set when we share them.
Track your spending.
It may sound depressing, but it’s unbelievably effective, here’s why:
Tracking your spending will probably be the most painful part of your journey.
Likewise, it’s the most important. Because when you see your own spending on paper — in black and white — you can no longer blame the kids or your busy schedule. You can’t complain that you “just need a raise,” or point to high taxes, the government, or anything else as the source of your woes.
We often create our own prison cells, either out of habit or laziness or because we fail to plan. And when we do, it’s easy to blame everyone else and think that escape is impossible. And that’s why tracking your spending is a crucial piece of the puzzle - it forces you to come face-to-face with the biggest threat to your financial future.
Pay off existing high-interest debt before investing
Obviously, paying 15%+ in interest on credit card debt, whilst investing to hopefully earn the average stock market return of 7%, makes no sense.
Clear high-interest debt first…
Invest on payday, every payday, and invest right…
Invest on payday so you’re not tempted to touch the money you’re committing to your future.
Invest every payday to benefit from dollar cost averaging – this helps your money compound over time, without the worry of market uncertainty.
Invest right, in exit-penalty-free, low cost, index funds for the long-term – for the highest possible returns, and the best life in retirement.
That’s it! You’ve now worked your way through the 12 steps to achieving financial freedom and never running out of money in retirement.
But wait…most expats with a QROPS are paying 6.5% in annual charges – if you have a £500,000 pension pot that’s £32,500 of your money being wasted every single year.
That money needs to be in your pension, growing for your future.
Whether you have savings, investments or pensions including QROPS, get a diagnostic second opinion of your portfolio now…
See exactly how much you’re losing in fees but much more importantly, discover exactly what you need to do to keep that money in your account.
Request your free portfolio review now – you have nothing to lose, and potentially thousands of pounds to gain.
One of the most important responsibilities of a financial planner is to help you with a retirement spending strategy.
In financial terms, retirement is known as the decumulation, or drawdown, phase.
The decumulation phase is extremely important. If you think about all of the questions to answer: “How much can I spend? When do I take it? How do I take it? Which buckets do I take it out of? How do I manage my tax impact?” All of this makes this phase much more complicated than the accumulation phase.
There's been a great deal of research into retirement strategy in recent years, and Vanguard is one of the companies at the forefront of what is sometimes referred to as the 'science of retirement'.
For a long time we didn’t really much thought to what retirement spending looked like, because we didn’t really have to. Most people were covered by a DB plan, state pension, or private pension.
People weren’t expected to provide for their own retirement to the extent that they are expected to now.
Garrett Harbron, an expert on retirement strategy at Vanguard Asset Management, says this is being compounded by the fact that the baby boomers are retiring, so we have more people retiring each year and people are living longer. The concept of a 40-year retirement 30 years ago was completely foreign. Today it’s very much a reality.
Traditionally, when planning a client’s retirement spending, many planners have relied on the so-called 4% rule. That means the amount the client takes out of their portfolio each year is fixed at 4% of its value on retirement, with adjustments for annual inflation.
There’s been a lot of debate around whether the 4% rule is still valid. Based on Vanguard's research, at least in the UK, we feel like it is. When Vanguard run numbers and simulations for the 4% rule and measures it against an 85% portfolio success rate, that’s over 10,000 simulations, the portfolio has money left after 30 years. 85% of the time they found that the maximum sustainable spending rate is actually 4.17%, so a little bit over the 4% mark.
So, the 4% rule is still valid. But there are alternatives which may suit you better. But bear in mind, this is a highly specialised field, and it pays to ask a professional financial planner to explain the options to you.
We all want different things from life. Some of us enjoy the simple things while others enjoy more luxury. There’s no right or wrong – but common sense applies. You need to make sure you can afford your lifestyle. Otherwise the luxuries you enjoy today could be at the expense of the opportunities you may have in the future.
You also need to consider that, as an expat, you live a more transient life. This presents its own unique set of financial challenges and opportunities.
Challenges include falling outside your home country’s social support system, including any state pension provision.
Opportunities include potential tax-saving advantages, and greater income generating prospects.
A general rule of thumb for income in retirement is the 4% rule. It is a guide used to determine the amount of funds to safely withdraw from a retirement account each year.
As mentioned earlier, the 4% rule is used to determine how much a retiree should withdraw from a retirement account each year.
The idea is the retiree receives a steady income stream, while maintaining a healthy account balance.
It’s considered safe by experts.
This rule seeks to balance out providing a steady stream of income, while also keeping a healthy account balance that can grow, thus allowing income to be withdrawn for the whole of your retirement. The 4% rule is considered a realistic rate, with withdrawals consisting primarily of interest and dividends. The table below shows the success rates based upon the timescale and the underlying investment split.
For example, if you are 100% invested in stocks, you are able to withdraw 3%, 4% or 5% for 15 years, without running out of money. Sticking with 100% stocks, over 30 years, a 3% withdrawal (after inflation) works 100% of the time, 4% works 98% of the time and 5%, 80% of the time. Your success rates are wholly dependent on the combination of your underlying investments.
1) The traditional method is to invest in an income paying equity fund, or portfolio of funds. These funds will invest into dividend-paying companies. These dividends are either paid into the fund, which is then able to produce an income, or paid out as cash to your pension.
2) Another method of generating income in retirement is through investing in a bond fund or portfolio of bond funds. These operate in a similar manner as an equity fund, except rather than owning company shares, the fund owns debt issued by governments, nations and companies. The issuer pays the fund a set rate for lending it money, which generates an income.
Having the correct retirement plan in place helps you make the right financial decisions that get you closer to your ideal future. Putting money aside monthly can help you reach your retirement goals a lot faster and can act as buffers in case of emergencies.
Here are some of the ways retirement savings can be beneficial:
1) Retirement savings act as a safety net in case of financial crisis.
2) Compound interest works its best magic with time and the earlier you start saving the better.3) Retirement savings can act as an emergency fund in unforeseen situations.
4) These savings, overtime, can also help you clear out debts and outstanding loans that overall help you reduce monthly expenditure and interest payments.
5) Segregating monthly income is the method used to decide on an amount you can save on a regular basis. This can help you identify your spending habits and rectify them, enabling you to save even more to reach your ideal future faster.
What if we told you, that for people with 40 years until retirement, £10 million is the amount they should be aiming to save?
That’s a lot of money, by anyone’s standards.
But inflation means £10 million may just about cover a comfortable retirement. £1 million will have the same spending power as £306,000 today. £10 million will equal £3,060,000.
Over the course of that retirement – it will shrink again.
Often, retirees don’t consider the impact of inflation on their income. Over the course of your 10, 15 or even 30-40-year retirement planning, the value of each pound in real terms will fall.
This is because the price of most goods and services will rise.
For example, an average inflation rate of 3%, would mean a £500,000 portfolio, after just 10 years, would be worth £375,000 – 25% less than at retirement.
Factoring in inflation is therefore crucial.
Growth ensures your portfolio remains of sufficient size to produce the yield you require, as you will also likely be taking an income from this portfolio.
Mr Jones is a self-made businessman who’s always been sensible and saved hard into his pension, which has grown to £500,000. He sold his business at the age of 55.
He is afraid of investing his money and losing it, so he leaves his £500,000 pension in cash. As he wants to use his pension pot as an income, he decides not to take a 25% tax free lump sum, leaving the entire £500,000 available for an income.
He decides then to take an annual income of £17,500. However, assuming a 3% rate of inflation, after just five years he will have eaten away £100,000 worth of his pension.
At this rate, he will have used up his entire pension pot before his 80th birthday and will certainly leave nothing for his family after he dies. If he had taken his 25% tax free lump sum, as most people do, he would use up his pension well before his 75th birthday.
There are three main things you can do to stop haemorrhaging cash:
1) Work out how much cash you actually need
Planning for how much cash you will need to support your current lifestyle is a very important part of your retirement planning. Start by working out how much you would need to fund your lifestyle for six months or a year and put that money aside. Also, pay off debts where possible, particularly short term debts such as credit cards as these are expensive.
Be realistic – think about what would happen if you were unable to work or lost your job due to unforeseen circumstances or health issues. Don’t leave yourself short.
2) Keep it safe
At AES, we strongly believe that senior international executives like yourself should have their cash in a secure offshore private bank, which provides all the banking facilities you will need, plus a good rate of interest. Money left languishing in low interest local high street banks, is at threat from political or economic turmoil (think Greece, Cyprus or Argentina) and can even be withheld in the event of death or following an accident or emergency.
Opening an offshore private bank account is step one for any senior international professional who is serious about taking control of their future.
3) Invest the rest
The best way to combat inflation is to invest your money.
To help you get started, we offer a no-obligation, 15-minute discovery call where you can find out how you can best put your money to work.
Your company’s pension plan will not be sufficient to fund your retirement.
One of our clients had a rude wake-up call. He was a senior executive at an oil and gas company (earning a lucrative salary with benefits) who expected a large pay-out from his company’s pension plan. 45% of his final salary to be exact.
However, on his last working day, the company broke the news – they had shifted pensions based on final salaries at retirement age to cheaper ones based on a ‘career average’ salary.
The pay-out he looked forward to was slashed by 25%. He needed to make urgent decisions as he didn’t have the benefit of time on his side. So, he downsized his villa to a humble 2-bedroom apartment and sold his luxury car, placing the earnings from both into a low-cost index fund.
The tropical holiday he planned for himself and his wife was temporarily put on hold.
Now, slowly able to rebuild his wealth, he makes sure others learn from his mistakes – especially his adult children.
“Don’t rely on your company’s pension scheme. Always have a separate investment that can bridge any possible savings gap.”
A life of ease is everyone’s ultimate goal, but with all the talk of longevity and retirement shortfalls, you need to plan your life a little differently, especially if you are a successful international professional and plan to retire early, maybe to go back home.
Everyone wants to know how long they’ll live, but of course, that's impossible. All you can do is prepare for possibly living longer than you ever imagined. After all, 1 in 3 people born today will live to over 100. Clearly, if your investment strategy is unsuitable, you’re badly diversified or exposed to too much risk, your money may run out.
This is why an evidence-based investment philosophy is ideal for those entering retirement (and in fact, for all investors at all life stages). It ensures your wealth is appropriately invested to match your tolerance for risk, and that you are globally diversified via low-cost investments.
Beyond other considerations, such as whether to transfer into a QROPS or not, extra care must be taken when planning how to invest your retirement wealth.
Beware of structured products. They are often sold as ideal investments for pensions because they have capital guarantees and income-producing features. However, when these products fail, and they so often do, they can be catastrophic for your finances.
Having clarity on this can lead to better retirement planning and change how you invest.
Below are the most commonly asked questions about investing for retirement that we come across, so you can have a better understanding of what could be the best way forward for you based on your individual needs...
You can choose to invest for growth or income – and you can choose to invest passively or actively.
1) Passive –
An example of a fund with a passive investment approach is a simple tracker. The money invested tracks the performance of an index like the FTSE100 for example. Passively invested funds come with some benefits such as lower costs, and some disadvantages such as inflexibility.
2) Active –
An example of a fund with an active investment approach is one that has a dedicated fund manager or team of fund managers moving money around, hoping to catch the best opportunities and avoid the worst risks. Actively invested funds come with some benefits such as the flexibility to change according to market conditions, and some disadvantages such as higher costs.
There’s quite a lot to understand before you start looking around for the best funds for your money:
1) Risk –
When it comes to investing it’s broadly correct to say that the more risk you’re willing to expose your money to, the higher the return you could potentially enjoy. Likewise, the lower the risk you’re willing to tolerate, the less significant the gains you may potentially enjoy.
It’s really important to understand your own personal appetite for risk.
At the most extreme end of the scale there are investments where your money is not guaranteed, but where you could enjoy unlimited gains.
At the safest end of the scale your investment and returns are guaranteed, but the returns are going to be small.
Your unique appetite for risk is one of the most important things for a professional financial planner to know. This can be done by a comprehensive analysis of your current financial position.
If you’re unsure about your own tolerance for risk get in touch with us and one of our professional financial planners will help you turn your lifestyle into numbers and understand what you need to get and keep the life you want.
2) Asset classes –
There are all sorts of different asset classes such as cash, bonds, property, shares and commodities. It’s important to know about the choice available and the pros and cons associated with each.
We have a guide to help you better understand these different asset classes.
3) Sectors –
Just as there are different asset classes so there are different sectors to choose from. In investing terms a sector is an industrial area of the economy in which companies provide a similar product or service.
An example of a sector is the defensive sector, which would include companies that are thought to be safer in a falling market such as utilities and healthcare firms. Another example is the growth sector, which tends to do well in a rising market. Companies in this sector could include technology or manufacturing firms.
4) Markets –
Should you invest in an established market or an emerging market? It’s important to understand the pros and cons of each choice and which nations are considered to fall into each market.
5) How your money is actually spent –
Some of your money will be spent on the actual investment, but some will be allocated to cover fees and charges. Generally, the more complex the fund and the more actively it is managed the higher the costs. Understanding the fee structure of any investment path you choose is critical – you don’t want to be overcharged compared to the potential gains you could enjoy.
Fees and costs are necessary but if they are too high they can erode the value of your overall investment. Regulated advisers and fund managers are always transparent about their costs. You need to ensure that what you’re going to be charged is reasonable for what you’re gaining.
6) Exit strategy –
Before you even commit to investing your money you need to have an exit strategy! The best laid plans sometimes change. Can you access your money if you need to? What are the consequences of accessing your money? Some funds lock you in for a specific term and you cannot access your funds until the end of the term without significant financial penalty.
Understand what you’re committing to – and never ever forget you should ideally have enough in cash deposits to cover about 3 months’ worth of essential outgoings.
Yes, regulated financial planners only ever recommend reputable offshore jurisdictions that have, for example, investor protection schemes in place, robust legal environments, and whose reputations are internationally respected.
It will be important to discuss jurisdiction choice with your planner, and for them to demonstrate to you the safety of a given location for your money.
In addition, it is recommended that you do your own due diligence on any recommended jurisdiction to ensure it is appropriate for you. It will be critical to examine investor protection policies and whether you will be eligible for protection considering you’re investing as a non-resident, and taking into account the amount of money you will be investing.
Investing should be boring.
Ideally, you should set up the right portfolio for you and your goals together with your financial planner – and then leave it alone.
You should spend less time worrying about your financial future and more time doing things you actually love.
Successful investing comes down to six principles:
For even better investment results, a systematic investment approach backed by years of Nobel prize-winning research is the best thing you can do for your retirement planning.
Our science-based approach is grounded in economic theory and backed by decades of leading academic research. While other investment managers have access to the same research, it’s the interpretation and application that sets our funds apart. It’s about identifying what works for investors and what can bring them far greater success by capturing the key ‘dimensions’ that exist in the marketplace.
Systematic investing encourages investors to stay disciplined, maintain a long-term investment horizon and diversify globally – three things everyone can control. These behaviours/actions will allow investors to take full advantage of time in the markets and is the ideal investment strategy in retirement planning.
Early retirement is one of the hottest topics in the world of personal finance. Some call it the holy grail and people are making hefty sacrifices for it…
Most of us will be lucky to retire at 60. Yet there are many self-made millionaires who are calling themselves retirees before reaching 30.
For many early retirees, it took years of diligence, planning and hard work, with a few lifestyle changes too. Besides saving a large portion of their incomes, some gave up their cars, downsized their homes and relocated to cheaper areas.
Being financially independent is a life philosophy. It begs the question “What would I do with my life if I didn’t work for money?”
Travel the world?
Start a hobby or two?
Dedicate your time to charity?
The options are endless as long as your money can support you.
But how can you retire early?
The obvious start is saving a large portion of your income. (Ideally, more than 50%)
This is in stark contrast to the typical household savings rates.
Boosting your savings can happen in two ways:
A longer retirement also means more chance of running out of money.
If inflation averages 3% a year for the next 40 years, the million dollars you save today will have the same spending power as $306,000.
If early retirement is something you are working towards, you need to weigh all sides. It’s not just about financial independence at the end of the day. But about fulfilment and happiness too and whether your decisions will sustain that happiness over the long-term.
If you need a second opinion or perhaps a chat on what an early retirement would mean for you, book a Discovery Call with us.
We’ll assess your needs, review your current portfolio and schedule a cash-flow plan to make sure you can achieve that goal.
So, at the very least, you’ll know what things may look like.
While some people aim to retire early, there are others who want to retire overseas. It’s an understatement to say that there’s a lot to think about when planning to retire abroad, it's easy to get confused and bogged down by it.
We wanted to give you some clarity by covering the 5 main categories you need to consider while planning to retire abroad. These include lifestyle, health, money, pensions and property because we know from our own experience that these are the core areas of concern to the majority of us who are planning our new lives overseas.
1) Lifestyle -
Getting and keeping the life you desire is the most important goal to bear in mind while planning for your retirement. Understanding whether this lifestyle you have built for you and your family can be enjoyed in the country you're planning to retire in, and the financial implications of the same is vital to your future financial well-being.
Consider whether you want to fully integrate into this new life. Most importantly, you need a professional financial planner to turn your life into numbers to ensure that the cost of living there does not exceed your retirement savings so you can achieve your ideal future.
2) Health -
Your overall health and well-being and that of your loved one's should always be a primary consideration in your retirement planning process, no matter which country you plan to retire in. Consider how you can protect yourself through a comprehensive insurance plan.
Looking into access to carers or at-home medical or welfare support in your new nation, in the event you need it in the future, could also help you plan better for unforeseen future life events.
3) Money -
When you move abroad, at least semi-permanently, you become known as an expat. And for the majority of expats you also become non-resident for tax purposes in your old home nation – it’s at this point in time that the expat advantage exists for you to embrace.
Understanding how to make the most of this advantage can help you protect your wealth.
Having a professional financial planner by your side will not only help you retire early, but can help you make moves like this more swiftly. All while protecting your wealth and the life you have worked so hard to build.
4) Pensions -
If you have a British pension pot and you’re retiring abroad you have the potential to enjoy even greater investment freedom. You may also be able to transfer your pension into an HMRC-recognised overseas pension scheme. Consider whether your move to retire abroad has any tax implications on your withdrawals or benefits. The key is in understanding where there are double taxation agreements in place, and where retirement income specifically, or foreign sourced income, is taxed at a favourable rate.
With very careful planning you may be able to retire abroad and enjoy your British pension at a significantly reduced rate of tax. You have to select the right country and abide by all qualification rules however – and you should take expert advice before making any decisions.
5) Property -
If you want to avoid common risks, take your time to get to know a place by renting a property there first. Learn the local language and then take your time to ask, enquire, explore and observe everything you need to regarding the property market. Chances are, if you finally do buy a property, you will pay less for more, and get an overall better and safer deal.
No other country has a property market as fickle as Britain. While the British market is protected by laws and regulations, it is also a market that booms and busts regularly. Elsewhere in the world there can be regulations and blocks in place, in the form of taxation for example, to deliberately take heat out of a market and prevent this damaging cycle. This can also prevent you making any profit on property bought there however, making it all the more essential to think it through thoroughly so it does not have a negative impact on your retirement plan.
A regulated life financial planner can help plan your finances around your goal to retire abroad and handle the drudgery so you can focus on the things you love.
There are many reasons why it may or may not make sense for you personally to invest offshore: these can only be properly understood on an individual and personalised basis with the help of a financial planner.
But in general terms, here are the main reasons some people choose to invest offshore:
1) Tax efficiency –
Depending on your nation of tax residence and personal tax status, it can be possible to structure investments in a tax-efficient manner by utilising offshore jurisdictions and products. This benefit is certainly not guaranteed for all, but it is a legitimate benefit that many international professionals can legally leverage. An international financial planner will understand any opportunities available for the tax efficient investment of your money and make recommendations accordingly.
2) Diversification –
By choosing to take an international approach you have a significant opportunity to diversify your portfolio. You can diversify across nations, markets, sectors, assets, currencies. When you think internationally the opportunities for diversification are vast.
Additionally, it may be the case that it is safer for you personally to keep your money out of your current country of tax residence.
3) Confidentiality –
You might not think you need confidentiality when it comes to your invested assets, but as an additional advantage often achievable through offshore products and jurisdictions it can prove to be of benefit to many. In these increasingly litigious times it certainly can’t hurt to put a legitimate layer of confidentiality between your investments and your personal details.
4) Accessibility –
Offshore services and solutions offered by international providers and companies are expat-centric. I.e., they are structured with an international client base in mind in terms of both accessibility and communication.
These facts can make life a lot easier when it comes to managing and accessing your wealth while you’re living overseas or planning to retire overseas.
Your retirement savings have taken you a lifetime to build and, while you may still want to invest, you cannot afford to lose significant sums of money.
You will not get another chance to build your pension savings. There are unscrupulous salespeople out there who are more than happy to take your cash and to invest it into high risk, high commission funds, which often fail.
The only winners in these cases are the salespeople who are paid vast commissions and will then disappear as soon as there is trouble. Before you begin planning your pension investment portfolio, make sure you discuss your attitude to risk with your financial planner.
There are three big considerations you must take into account when setting up your portfolio for retirement:
Generating enough income for your desired lifestyle.
Making sure your money lasts through your retirement.
Stopping your capital from losing real value.
Consideration 1: Generating enough income for your desired retirement lifestyle
There are two main ways that you can generate income in retirement. One traditional method is to invest in an income paying equity fund. These funds will invest into dividend paying companies. These dividends are paid into the fund which is then able to produce an income.
Another method of generating income in retirement is through investing in a bond fund. These operate in a similar manner as an equity fund, except rather than owning company shares, the fund owns debt issued by a company. The issuing company pays the fund a set rate for lending it money, which generates an income.
Consideration 2: Longevity – planning to make sure your money lasts through your retirement
Clearly, if your investment strategy is no good, your money is going to run out. It will be particularly damaging if you lose a substantial sum of money through a stock market crash or other unexpected events, as there is no way to get your money back quickly.
This is why the asset mix within your portfolio is important. As well as generating the required amount of income, you also want to ensure you do not have too much risk.
Consider allocating some of your portfolio to very highly rated government bonds – UK and German government bonds are currently two of the best – or very strong blue chip companies.
By purchasing bonds from these companies, or investing in funds which do, you will offer your portfolio some stock market protection, while also growing your capital.
Mr and Mrs Smith moved to Spain around six years ago with £152,858 in savings to see them through to retirement. They bought a property and set up a small B&B business. In addition to their savings, Mr Smith had a UK pension worth around £425,000, with which he planned to fund their income in retirement.
While in Spain, they were contacted by a financial adviser and took his advice to transfer Mr Smith’s pension into a QROPS to allow “more investment freedom”. So far, so good.
They were in a strong position, with enough to comfortably retire on. Their pension commencement lump sum would have been enough to clear the business mortgage on the property.
With minimal ongoing costs, they would only need an income of around £15,000 per year to live a comfortable retirement, which the remaining pension pot would have easily provided.
However, their financial adviser had his own retirement in mind. He found it easy to persuade them that a series of structured products was the right way to invest their money. Headline features like ‘capital protection’ and ‘quarterly income paying’ on these products make them sound low risk, as does the fact that they’re underwritten by large well-known banks.
The structured products performed badly. Some of them were linked to individual stocks which plummeted in value, while others were linked to assets such as gold which also fell significantly in value.
Despite the adviser’s promise of capital protection and income payments, the Smiths lost 60% of the value of their pension savings. As a result, their dreams are in tatters and they have had to push their retirement plans back several years as they return to work in the UK to replenish their savings.
While the decision to transfer into a QROPS is sound enough, extra care needs to be taken as to what your ‘adviser’ invests your cash into.
Consideration 3: Inflation – preventing your capital from losing real value
One factor often not considered by retirees is the impact of inflation on their income. Over the course of your 10, 15 or even 30-40 year retirement, the value of each pound in real terms will fall. This is because the price of most goods and services will rise.
For example, factoring in an average rate of inflation of 3%, after just 10 years, a £500,000 portfolio would be worth £375,000 – 25% less than at retirement.
Factoring in inflation is therefore crucial when looking at pension portfolio investing. Growth is going to be critical to ensure your portfolio remains of sufficient size to produce the yield you require, as you will also likely be taking an income from this portfolio.
We would suggest therefore that a pension portfolio focuses on strategies with low, smooth volatility (stock market ups and downs) to soften the impact of capital reduction. This would typically include a wide mix of investments, some more risky than others, which should hopefully provide income, preservation, and growth.
Mr Jones is a self-made businessman with an independent retail store and has always been sensible and saved hard into his pension, which has grown to £500,000.
He sold his business at the age of 55, after repaying his mortgage and other outstanding debts. He is afraid of investing his money and losing it, so he leaves his £500,000 pension in cash.
As he wants to use his pension pot as an income, he decides not to take a 25% tax free lump sum, leaving the entire £500,000 available for an income. He decides then to take an annual income of £17,500.
However, assuming a 3% rate of inflation, after just five years he will have eaten away £100,000 worth of his pension. At this rate, he will have used up his entire pension pot before his 80th birthday and will certainly leave nothing for his family after he dies.
If he had taken his 25% tax free lump sum, as most people do, he would use up his pension well before his 75th birthday.
Take note: If he invested his money, even cautiously, it would mean he could have helped to protect his pension from the effects of inflation, as a 4% return would have seen him comfortably past his 85th birthday.
If you have reached this far, it is likely that you are ready to start making some serious decisions about your retirement.
If you can relate to many of the points we mentioned above, you are likely to have slightly more complicated circumstances than someone who has just started saving for retirement, or who has just moved abroad.
No one likes to think about mortality. But the reality is harsh and unavoidable. It can be even harsher for those you leave behind.
Life is a wonderful contradiction. On the one hand, everyone is living longer than ever. On the other hand, more people are dying from accidental deaths, heart diseases and strokes (and from a younger age too).
Most of us have car insurance for the likelihood of an accident, theft or breakdown taking place; home insurance to cover the material goods held dear; and medical insurance that protects us during illness.
But if you die prematurely without adequate life cover in place, what would happen to your loved ones? Life cover protects your loved ones so your children can finish college if you’re not around to pay for it and your family can maintain their standard of living without your regular income.
It’s vital to plan for any, and all, eventualities. It’s also important to know that different countries have different laws pertaining to deaths and dues. Loans, fines and credit cards usually need to be paid by surviving family members.
Investments, estates and trusts have long approval processes, meaning it could be months or years before your loved ones are able to access what’s inevitably theirs.
These financial burdens can be avoided. Or, in the very least, alleviated. Today, your premiums are the cheapest they’ll ever be because, right now, you’re at your youngest.
As you get older, the expected premiums increase every year. So, the earlier you start a protection plan, the less it will cost you on a monthly or annual basis.
Simply by taking action today, you can secure your loved ones’ financial well-being.
In the event of your death, they’ll receive a lump sum to help pay for expenses and maintain their standard of living.
Without having a plan in place, overtime, the medical expenses and health costs for you and your family can harm your retirement savings. Unforeseen medical conditions can come up at any time. Science and medicine has evolved to be able to treat things better but the costs for treatment and health insurance when you have a serious condition will be a lot higher than if you started planning for it now.
As an international senior executive, you may have the best insurance coverage for you and your family during your employment term, but planning for the future involves thinking about health emergencies and long-term costs that can come up after you retire and how you can prevent these unforeseen expenses from eating into your retirement savings.
What’s the likelihood of needing long-term care?
As per a study conducted by NHS in the UK:
It is easy to rationalise that you and your family have a healthy lifestyle and may not need long-term care for anything, but on the greater chance that you will, you should have a plan.
Keeping a separate savings fund for these unforeseen expenses is an option but the ideal option would be to get a comprehensive life insurance that covers you and your family, the payments for which can be made monthly. The earlier you get the policy, the lesser you would pay per month (based on pre-existing conditions of course) but having this in place will not only give you peace of mind but will protect your wealth in retirement.
Life may not always go as planned and these bumps along the way can throw you off track.
Long-term care could also be needed to sponsor old age homes in case the need arises and getting the right insurance cover, not just for you but for your spouse and children, is extremely important to manage long-term costs. Additionally, you can take a couples policy if one of you has pre-existing health conditions rather than paying higher individual premiums.
Overall, long-term care and medical costs coverage is a vital part of your retirement planning process.
Get help from a regulated financial planner to navigate through this process with ease.
Many of us procrastinate sometimes – even the most productive people, apparently!
But when it comes to saving for retirement, procrastinating is not advised. Early birds don’t just get the worm - they get five star buffets for almost no effort.
Let’s illustrate the cost of procrastination with a story of three fictional couples.
In each case, these couples have always earned the same as the typical UK household.
For example, based on data from the Office for National Statistics they had £6,444 of disposable income per head in 1977. In 1982, they had £7,435 of disposable income per head. By 1987, they had £8,565…
These couples are all the same age…
The key difference between them is, they didn’t all begin to save for their retirements at exactly the same time.
In 1977, Sam and Kate were 25 years old. They decided to save £175 per month (£2,100 per year). It would have represented 16.29 percent of their annual income.
They bought low-cost mutual funds, putting 70 percent of their money in stocks, 30 percent in bonds.
The couple’s funds matched the returns of each respective market. In other words, and for the sake of this illustration only, their stock market mutual funds matched the S&P 500. Their bond market funds matched the performance of a broad US government bond index.
But Sam and Kate were lazy!
As their income increased, they didn’t increase what they invested. They just continued to add the same £175 per month.
By 1982, their income had increased to £14,870 per year. As a result, their investment of £175 per month no longer represented 16.29 percent of their income. It was now just 14.12 percent.
By 2007, that same £175 per month represented a paltry 7.47 percent of what they earned.
By 2007, the other 2 couples were investing a lot more money than Sam and Kate.
But that didn’t matter. These 2 early birds still soared higher.
According to portfoliovisualizer.com, they would have had about £1 million by the time they were 65 years old without ever increasing the monthly amount they invested.
Stuart and Lisa live next door to Sam and Kate. They didn’t start to invest until they were 35 years old. They invested £600 a month (£7,200 per year) in 1987.
It represented 42.03 percent of their disposable income – ouch.
But, by scrimping so hard, by the time they were 65 years old, they also had about a million pounds.
Stuart and Lisa had to save much more than Sam and Kate. As a result, they weren’t able to spend as much of their income on the finer things in life.
When Sam and Kate asked Stuart and Lisa to join them for a South African safari, they couldn’t afford it. Their monthly retirement savings ate up far too much of their income.
However, at least they were doing much better than David and Sarah!
This couple only began their retirement planning when they were 45 years old.
At age 65, they also had a £1 million portfolio - but to reach that goal, they had become slaves to their savings. The couple saved a whopping £1,800 a month (£21,600 a year).
Such savings represented 92.79 percent of their disposable annual income. That’s why, to reach their retirement goal, they had to rent out their home and live in their car!
Of course, these are just fictional examples. But the numbers are real! We used actual investment returns between January 1977 and July 2017.
The lesson here is massive – yet simple!
If you procrastinate about your retirement planning and start to invest later, you’ll have to save a lot more money to reach your ideal future.
For example, Sam and Kate began to invest in 1977. They would have saved a total of about £84,000 to amass £1 million.
Stuart and Lisa started to invest 10 years later. They would have invested about £216,000 to reach a £1 million portfolio.
David and Sarah didn’t invest until they were 45 years old. As a result, they had to save about £432,000 to reach their million-pound milestone by age sixty-five.
If they had started to invest ten years later (at age 55) they wouldn’t have reached that goal – even if they had invested every single penny they earned!
We are not saying you need £1 million to retire. But just to show you the power of investing early and the pain of procrastination.
No matter how old you are, how soon you want to retire, whether you've started saving yet or not, there is work that can and should be done to get you on track.
We've written a series of articles you may find inspiring: -
Don’t think you can invest in your 40s? Think again!
How to invest in your 50s: 5 steps for financial success
In your 60s and planning for retirement? Is it too late to invest?
And the only thing left to say is, whilst it's never too late, you'll never be younger than you are today, so today is the right day to begin planning, start saving and to get best advice.
There may be a very good reason to consolidate pensions, particularly if fees and charges are running away with a pension you've perhaps left behind onshore in your old country of residence.
There may be an argument for you transferring your pension/s abroad as well.
The best advice...is to seek the best advice.
What is right for you and your pensions and personal retirement goals may not be right for the next person.
Seek advice, and ensure your pensions are working hard for your retirement, and not being impacted by high fees.
A good financial planner will help you convert your life into numbers so you can understand how much you would need to save for your retirement, and how you can get there. You can find more information about this here.
A company-provided pension can be far from sufficient for your retirement, even as a senior international professional. It is always advisable to have a plan and put your retirement savings to work to generate more income. Identifying your retirement goals and how much you would need to get there can better help you make this decision.
Investing your retirement savings can help you retire early and get and keep the life you want. Essentially you are putting your savings to work to generate more income for you. You can learn more about DIY investing here, but ideally a regulated financial planner will best be able to guide you through this journey.
This is a common, yet difficult to answer question.
A great deal will depend on what you hope to achieve in terms of lifestyle in retirement. Additional considerations include where you want to retire, how long you've got before you want to access your pension savings, and how much you can afford to invest today, without impacting on your current lifestyle.
It's important to discuss these factors and more with a qualified retirement planning specialist.
The amount of risk you should take on at any point of time should always be based on your appetite for it. Ideally, higher investment risks can be taken on early in your planning stages when you have age on your side. You can learn more investment risk in retirement here.
A QROPS is a pension scheme outside the UK that has informed HMRC that it meets certain UK requirements, and so can take transfers from UK registered pension schemes. You can learn more about QROPS and the differences between QROPS, QNUPS and SIPPs here.
UK inheritance tax for expats is chargeable, on worldwide assets, at a rate of 40% of the amount by which the total value of an expat's worldwide estate exceeds their nil rate band, which is £325,000 in the current tax year for individuals, or £650,000 per married couple. You can learn more about this and how a regulated financial planner can help you protect your wealth from the taxman here.
Long-term care planning refers to any unforeseen health emergency planning for you and your family, which should be covered by insurance or elderly care plans based on your individual needs.
Retirement planning on the other hand is much more than just about being financially secure in your retirement. It’s about identifying your life goals and what makes you truly happy and then crunching the numbers with a professional financial planner to strategise on how you can get there so you can achieve your desired future.