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Retirement planning for expats: key things to consider

Planning for retirement requires significant consideration, especially if you live and work abroad. When you’re an expat, there are always additional factors to consider, including where you wish to retire, your eligibility for pensions and your nationality. Are you eligible for a mortgage if you wish to purchase a property in your country of residence?

Lifestyle Financial Planning

Planning for retirement requires significant consideration, especially if you live and work abroad. When you’re an expat, there are always additional factors to consider, including where you wish to retire, your eligibility for pensions and your nationality.

Are you eligible for a mortgage if you wish to purchase a property in your country of residence? Are you making the most of tax advantages available to you?

In this post, we answer these and other questions to help you check whether you’re on track to retire when and where you have in mind.

When do you hope to retire?

Early retirement is an attractive option but only if you can afford it. Gone are the days where your employer would look after you during your twilight years. Unfortunately, more people are retiring with less money than they need to live a comfortable retirement.

You could continue working, but for how long? You could rely on a state pension – if that’s an option – and hope for the best. Perhaps you could count on family, friends or charity.

If the thought of working longer or relying on others worries you, it’s time to take retirement financial planning seriously. That starts with knowing where you wish to retire and how you intend to fund your retirement.

Which country are you planning to retire in?

The challenge for many expats is not being able to predict where they will retire. However, as with any lifestyle planning, it’s best to start thinking about it sooner rather than later.

Some of the best places in the world to retire offer a low cost of living and lower taxation rates, making them popular amongst expats. However, it’s not always as straightforward as it seems: as an expat, your retirement options depend, in part, on your nationality and whether you can access retirement benefits in your native country while living overseas.

For example, it can be more difficult for a US citizen to access retirement funds from abroad whereas British expats have access to the Qualifying Recognised Overseas Pension Scheme (QROPS).

How might your nationality impact your decision?

As well as taking the above into account, you need to be clear on your eligibility to retire in a particular country. Not everyone has the same entitlements when it comes to choosing where to retire. Also, how far away from friends and family do you wish to be? And if you’re in a relationship with someone of a different nationality to your own, keep in mind the same factors when it comes to eligibility and distance from respective loved ones.

Who is funding your retirement?

Public pensions

A state-sponsored or public pension is one where a respective country’s government provides a tax break to encourage you to save for retirement. Depending on the country, these schemes have different names, for example Basic State Pension (United Kingdom) and Swiss State Pension (Switzerland).

Just how attractive tax breaks are depends on where you are in the world, so it’s important to do your research into the different schemes and associated tax liabilities. Understand clearly your pension rights in the country in which you currently reside and pay tax.

Company pensions

Expats can change jobs, and therefore countries, on a regular basis. While this carries many positives, there is always the risk you could lose your company pension when changing jobs.

Some multinational firms use pan-European funds for their staff to avoid employees facing this issue. Because of the tax advantages, a number of companies use Luxembourg as a base country for managing pension schemes.

However, always do your homework and find out what happens to your company pension when you change jobs. You don’t want to run the risk of losing track of pension contributions you’ve made over time.

Personal pension plans

Previously, you could count on your employer’s pension scheme to make up the majority of your retirement nest egg. This is no longer the case. You need to take responsibility for saving as part of your retirement planning.

Personal pension plans are one of the ways in which you provide an income for when you stop working. Many countries offer tax relief on pension savings like 401ks in the US; however, this depends on where you pay tax.

International savings accounts

Supplementing your pensions with an international savings account will help ensure you have enough to live comfortably once you stop working.

While international bank accounts can be negatively perceived as a way to avoid paying tax (which is illegal), if managed correctly they boast legitimate financial advantages for expats over domestic banking arrangements.

One of these advantages relates to investing. Investing from an international bank account is relatively straightforward and can give you access to investment opportunities that may not be available in your home country or where you currently live. This is just one of five major advantages of international banking for expats.

If you want to buy property, can you get a mortgage in your country of choice?

Purchasing property has long been a popular investment choice as it offers a passive revenue stream if you choose to rent it out while you’re living elsewhere and it helps boost retirement savings.

Five of the most popular countries for expats looking to buy overseas property include Spain, France, Cyprus, Greece and Italy. They are popular for the lifestyle benefits they offer as well as the attractive lending rates and interest rates.

Note that annual lending terms and interest rates will vary subject to your overall financial profile, loan-to-value ratios, purchase price, location and amount borrowed.

You need to do your research. Are you eligible for a mortgage in your country of residence? If so, are you protected in the same way as a citizen? Or do you need to seek a mortgage in your native country to buy an overseas property?

Either way, there are many important considerations, including the currency of your loan and how that affects repayments, your protection as an overseas borrower and the laws controlling both the mortgage and the property purchase.

A top tip when it comes to buying a foreign property, as outlined in our guide to Overseas Property, is to always seek independent advice.

Will you leave behind a Tax Inheritance bill?

If you have children, you will need to keep in mind things like Inheritance Tax.

Inheritance Tax is a tax payable when assets or money are passed to someone else. It is most commonly paid when your estate – the combination of your worldwide property, savings and investments and other assets – passes to other people after you die.

A financial planner can forecast your future finances to calculate whether there is likely to be any Inheritance Tax to pay when you die. If you know you’re going to leave behind an Inheritance Tax bill, you can do more to plan ahead – whether that means spending more or making provisions to pay the future bill. This may change how much you plan to save for your retirement or how much you plan to spend during retirement!

Make the most of tax advantageous investments

Offshore investments offer expats a number of benefits in addition to tax efficiency. When you’re moving around the world, it can be easy to lose track of what you have invested and where. With offshore investments you can easily stay on track.

Offshore investments are also increasingly popular because they act as a geographically portable retirement plan. And, contrary to what is often reported, today’s offshore jurisdictions represent highly professional and regulated wealth management services. Luxembourg is just one example.

The most popular form of offshore investment is an offshore investment bond. These are investment ‘wrappers’ set up by life insurance companies in which you can hold a wide range of funds covering different types of assets such as equities, fixed interest securities, property and cash deposits.

An offshore bond applies the legal and tax advantages of a life assurance policy to an investment portfolio. They are widely used for tax planning, particularly for clients who have already used up their annual tax-free instruments in their native country like Isa and pension allowances for UK expats.

While the bond is invested you do not pay tax on it, known as gross roll up. This allows your investments to grow unhindered by tax, potentially enhancing your overall returns. Depending on the jurisdiction, withholding taxes may apply; however, the offshore bond is not taxed on capital gains.

You can draw down small amounts each year, up to 5% of the amount of the original capital sum and defer the tax bill on that until the end of the contract. This 5% allowance is cumulative, so if you do not use it one year, you can carry it over to the next.

Being able to take regular amounts without upfront tax can make offshore bonds useful for structuring an income stream during retirement.

How much is enough for retirement?

The simple answer is when you have enough to fund the lifestyle you’ve planned, without having to work. The exact amount you will need varies for each person and is likely to evolve throughout your lifetime.

Use an online calculator or work with a lifestyle financial planner to work out how much you need to save to achieve your desired monthly income at your preferred retirement age. The last thing you want to happen is to think you have enough money when you take your retirement only to find out that it runs out at 75 based on your lifestyle:

retire at 60 - run out of moneyThe key is to understand when the trappings of life, earning more or saving more begins to reduce how much you enjoy life. Having enough is about more than just money; it’s about having time to appreciate those around you and what you already have, and to enjoy the fruits of your successes.

To retire at 50, you will need to have savings of over €1.25 million for an annual revenue of €50,000 (based on the ‘4% rule’).

How much to contribute monthly to your retirement savings

The partner to “sooner rather than later” is “little and often”. Contributing small amounts regularly can have a big impact.

It’s better to consistently contribute to a pension when younger than to save the equivalent lump sum later in life. Also, systematically investing your pay rises into your pension savings and investments can significantly change how much you have when you retire.

Are you on track with your retirement planning?

Regardless of whether you’re nearing retirement or just starting to plan for your future, knowing how much you will need to retire comfortably can be challenging.

There are various factors to consider including your ideal retirement age and what exactly a comfortable retirement means to you. You then need to balance that against how you can afford to live now and work out how much you can afford to invest in pension plans and retirement savings.

Whatever your decision, you need to plan ahead and be truthful about what a good retirement means to you.

Speak to a professional

Those who receive advice about their retirement planning save a third more and retire with double the pension savings.

A financial adviser will provide unbiased advice on retirement financial planning. If you have any questions about planning your retirement, get in touch with us.