Expatriates at Risk of Retirement Debt

A third of expat pensioners admit they failed to set aside enough money for their retirement, a study shows.


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Around 33% of people said they had made inadequate financial preparation for a comfortable retirement, while 12% thought they would never be able to afford to fully give up work, according to the study for HSBC.

Part of the problem is that many expats do not know where to start when it comes to retirement planning. Doug Ramsay, managing director of NowCompare.com, said: “The first stage of pension planning is to work out how much money you are likely to need in retirement.”

This is a complex calculation and depends on a number of factors, such as the age at which you plan to retire and where you plan to live, so it is a good idea to seek financial advice at this stage.

But, as a general rule, Ramsay suggests people should be aiming to have a pension income equivalent to around half to two-thirds of their salary immediately before they retire, assuming they own their own home.

The next step is to work out the size of the lump sum you are likely to need in order to generate an income of this size.

There are many online calculators that can help with this, although broadly speaking, someone who wanted to retire on US$4,000 a month at age 65, would need a lump sum equivalent to US$900,000 in today’s money.

Ramsay said: “While accumulating a sum of this size may seem daunting, it is achievable with proper planning and budgeting, particularly if you start saving early.” For example, someone who starts saving into a pension at 25, would need to set aside just US$350 as month to reach a target sum of US$900,000 by the time they were 65, assuming average investment growth of 7% a year.

Ramsay also points out that most people will not be accumulating this sum entirely on their own. 
Retirement planning is typically made up of three pillars, namely a state pension, a company pension and private savings.

While a state pension alone is unlikely to provide enough money for a comfortable retirement, it can contribute a significant chunk to the money you need.

For example, someone from the UK who qualified for a full state pension would receive just under US$11,000 a year if they retired after April 2016.

As a result, it is important for expatriates to take any steps they can to ensure they will still qualify for the maximum state pension in their home country, even if they are likely to retire abroad.

It is also important to look at any company pension options available. Ramsey said: “While generous final salary schemes are now a thing of the past for most workers, the majority of company schemes do involve an employer contribution. This is like an instant return on your own contributions and definitely worth having.”

But he added that some expats may not have access to either a state or company pension while they are living abroad, making it essential that they set aside money into a private pension.

Picking the right investment vehicle for private saving is important, and it is a good idea to shop around and compare the market, as there are a wide variety of products out there.

People should pay close attention to management charges and other fees, as these will impact on the returns they make, as well as looking at how flexible the savings vehicle is if they relocate away from Hong Kong, need to cash it in early or want vary their contributions.

Finally, people should not ignore the impact inflation will have on their retirement savings. If inflation is running at 4%, the buying power of people’s savings will halve every 20 years.

One way to reduce the impact inflation has on your savings is to ensure you increase the amount you set aside each year by at least 5%. It is also important to try to achieve net investment returns that are greater than inflation over the long-term.

To compare the different pension products available on the market or to contact an advisor visit http://www.NowCompare.com.