Retirement planning for internationals
It is becoming clear that as individuals we have to take responsibility for our own retirement planning, it will not be enough to rely on employer pension schemes (where many people are only making minimum contributions) or indeed state pensions.
As a result of the credit crisis many governments are running huge deficits and are considering raising state pension ages. Added to this, most developed countries have an ageing population, meaning that less people will be working to fund those who are retired.
If you are a contractor or self-employed, you will not be accruing any company pension benefits at all. Taking responsibility for your own finances is therefore even more crucial.
Generally, international people and expatriates appreciate that proper planning is vital if you want to have financial security in later life. Indeed, just to have options in terms of when to retire or to pursue other projects, would be in a nice position to be in.
Often, expats are in good jobs and in a position to set some of their income aside for the longer term. But where best to put it? When you are living and working abroad it is often difficult to know what to do with money you want to set aside.
International Savings Plan
An international worker should always consider using an international savings plan. The key features of these are:
If you move back home, or work in a different country, you can take the plan with you, and continue to contribute to it. This is a major advantage of the International arrangement as you can not do this with most other schemes, leaving expats with a number of different pension schemes scattered around in different countries.
Most international plans will take into account the uncertainties of working internationally and allow you to control how and when you make contributions, as well as how much and in what currency.
It is a private plan, which you can control. For example it does not need to tie you to a specific retirement age and does not require you to take an annuity (exchanging capital for a lifetime income). You can choose when and how you use the money you have saved and retain control of the capital.
› Investment choice
Most international savings plans give you access to a wide range of funds, to suit most risk profiles. You can normally switch these funds at any time.
This is important of course as you get closer to the point when you actually need to use the money; for example it is not advisable to be fully invested in equities with only a year or two left until retirement.
Savings are usually based in a tax-efficient environment, where they can grow tax-free. Contributions however are generally not tax deductible, unless it is part of a larger employer funded scheme.
Other notes on International Savings Plans
International Savings Plans do not necessarily have to be "offshore." Financial security and regulation are important factors and each individual will have different requirements.
Your expected destination (i.e. where are you most likely to be in retirement) should be taken into account as this can impact on which type of pension arrangement will suit you best. For example, if you intend to retire in France, you should be aware that some plan structures (with assurance vie status) are particularly tax efficient there.
Retirement plans should be regularly reviewed, as part of your overall financial planning. One of the reasons why people do not get the most from their finances is the lack of regular attention paid to their arrangements.
Consider using a regulated independent advisor who should offer regular reviews as part of their ongoing service.
The sooner the better!
It really is the case that the sooner you start to set side something for the long-term, the more chance you have of building a comfortable retirement pot.
It is important to be aware of the "cost of delay." When you consider the lost contributions and compounded interest that would have been earned, "putting it off for now" can cost you a considerable amount and only means you have to save more in later years.
The advice is therefore to set aside whatever you can from your monthly income and start planning today!