Introduction on How To Plan Your Expat Pension (Kuala Lumpur)
I am currently working with a number of clients in Kuala Lumpur and thought I would take this opportunity to introduce myself and my company to you, to see if the work we do could be beneficial to you now or at some point in the future.
I am an Asia based, Independent Offshore Investment Advisor and I have been involved in the financial services and financial planning business since leaving full-time education in Protected content holding a Pension Planner certificate with the Banking, Finance and Insurance Commission back in Belgium, a BSc in Business Management and a MSc in Social Science.
It is my intention to provide an insight in to both the mainstream products offered by the general population of financial advisors out there and also the alternative investment areas that are often overlooked or ignored. Our mission statement is to be the leading provider of personal financial planning services and offshore investing advice to the expatriate community and to provide these services and solutions with integrity and added value.
Financial services are 'high involvement products'. Determining the differences between alternatives makes high-involvement purchases difficult, especially if the buyer is not an expert. Mistakes made in the selection process are either impossible or expensive to correct. Therefore, the choice of a competent, knowledgeable advisor is of paramount importance. Why is it then that so many otherwise intelligent people buy financial services products in the same casual manner in which they pick up a bar of chocolate? More often than not, they buy these products from people they have just met as a result of a sales pitch over the telephone. I prefer to work from personal referral and actively encourage my clients to introduce my services to people they know. The result is that I have more time to spend on adding value to my clients and keeping them up to date and informed. This strategy also enables me to continue to develop my knowledge of an ever evolving financial product market place. Your friends, relatives and acquaintances will get advice from someone, better to have the satisfaction of putting them in touch with a professional who will look after their interests in an industry dominated by unscrupulous operators whose only concern is the size of their commission cheque.
Effective capital building can only be considered after ensuring you first have sufficient liquid capital for emergencies and opportunities and then moving on from there to more sophisticated, asset backed savings. Sound financial planning is vital to ensure your future prosperity and security. To help you maximise investment opportunities you may wish to consider how you make the most of any income that is left surplus at the end of each month or how to maximise the investment potential of any bonuses you receive. Bank deposits are the starting point for this area and are essential as a source of emergency cash. Investing for longer periods needs careful consideration to ensure you obtain the best yields in an effective manner. Regularly investing in the international financial markets is an option that can prove to be attractive. It does, however, require considerable time and knowledge to keep abreast of changing investment conditions in different markets. Few private investors have the time or resources to commit such analysis and can be overwhelmed with the paperwork, cost and time involved in maintaining their portfolio. Many investors, therefore, turn to investment through "pooled funds". This method offers a cost effective solution that can bring the benefits of a world-wide investment portfolio within reach. Pooled funds group the capital of many investors together, enabling them to benefit from professional investment management and reduce the potential risks of stock market investment by diversification. For those investors with no specific time frame in mind but looking to invest over at least a three year term, I would normally suggest an open-ended arrangement that imposes no restriction on access to your accumulated capital and no pre-determined time frame or commitment to contributions. Others do prefer the discipline of a fixed term arrangement which can be made available from 5-years upwards. These latter solutions often fare better than their open-ended cousins as they tend to benefit from loyalty bonuses and rebates.
So How To Plan Your Expat Pension?
Let’s look at the basics of establishing a structure for making sure that you have sufficient capital set aside to cover all your income in retirement. There is more than a couple of ways of looking at this. I will look at two basic methods which I call the "technical approach" and the "not so technical approach".
The not so technical approach is easy.
1.Decide how much you want to save each month and at what age you want to retire.
2. Set up a pension plan with a company you feel comfortable with.
The problem with this approach is that you are not establishing any targets or goals and this means you will likely fail to plan properly. The old adage, "those who fail to plan, plan to fail" springs to mind!
THE TECHNICAL APPROACH.
Decide what level of income you would need when retired. The best way to do this is in today's terms, so if today were the day you retired, decide how much annual income you would need/like to have.
Let's say for arguments sake, the figure is US$100,000 per year and you plan to retire at age 65. We need to make certain basic assumptions on the annual level of inflation in the country that you intend to retire to and the average annual level of growth we can make on your money. Working on a UK retirement and that annual inflation averages 3% per annum from now until you reach 65 and that you are currently aged 40 means that you would actually require US$209,377 per annum to maintain today's purchasing power.
We then need to calculate how much money you would need to accumulate over the next 25 years to provide that income and again there are many variables here such as whether you would require preservation of capital and just live off the interest or whether you would buy an annuity from an insurance company which means using your capital plus interest to provide a lifetime income. The latter would mean that you would not need to accumulate quite so much capital but the former is clearly more attractive. The former is also easier to calculate. Assuming an annual return on investments in retirement of 6% you would need to have capital of just under 3.5 million.
Funding that through one pension savings plan is likely to be something of a burden but of course, in reality, almost everything you invest between now and then will eventually go to providing your retirement income or reducing the cost of living such as providing a home so you do not have to pay rent or a mortgage.
EXAMPLE OF A GOOD PLAN.
The basic starting point for most people is the establishment of a regular savings regimen because if you never do anything else but this, at least you will have something to fall back on. So many times, on maturity of a savings plan, I have had the comment, "at first it seemed a heavy commitment but after a while we did not even notice the premium going out of our account and without this, we would have saved nothing at all over the last years"
The debate rages on about whether your regular savings plan should actually be set up to run from now until the actual date you intend to retire and many people feel that with 25 years to go, a 25 year plan is way too long in the future and so some people set up their first plan to run for just ten years and then revisit the options from that point. Others have told me that if they did that they would most likely take the cash out at the end of the ten years and spend it, so it is a personal point of view thing and one that needs discussion.
Let's assume though that a plan established to run to age 65 is decided upon and that the aforementioned figures are the basis of our planning. A quick run through on a standard retirement planning computer programme would tell us that you would need to set aside a level monthly investment of US$3,297 per month assuming that the average annual return on investments was 10%. Heavy.
• If you opted to have the premium amount increase each year by 5% per annum, the monthly requirement at outset would come down to US$2,163.
• If you opted to have the premium amount increase each year by 10% per annum, the monthly requirement at outset would come down to US$1,299.
Depending upon your circumstances, the figures above will either look outrageously high or easily do-able. The point is though that everyone's situation is different and having gone through this process many times with many different people I can tell you that 99% of the time, we get back to the "NOT SO TECHNICAL APPROACH" described at the beginning.
At the end of the day, setting up a pension plan is all about establishing a regular commitment to save X amount over a fixed period of time and that usually boils down to how much are you comfortable with right now and more importantly, is that amount likely to remain comfortable for you even if you leave your expat assignment next year and go back to your home country to work where you will be paying tax and probably making a good deal less money in the first place?
Here is what generally actually happens. Realising that something needs to be done, the individual examines their budget and comes up with a figure that is technically sustainable no matter what happens. Let's say this figure is US$500 per month.
Our same computer programme tells us that the level monthly contribution of US$500 will be US$509,983 at age 65. If this could be invested at age 65 at 6% per annum, it would create a retirement income of US$30,597 without touching the capital. You could get more if you were happy to forego use of capital in the future.
This is the important part. If you never did anything else towards your retirement funding and this did what it said it would do then you could survive, right?
Once you have that plan established and as long as it gets monitored and tweaked, then you could reasonably expect to build up a far better fund than that estimated because as you get older, you become better paid and start to get more scared about the future and so you either;
1. increase the plan contributions on a regular basis
2.make additional contributions on an ad-hoc basis
3.invest with the same advisor in different styles of investments
WORKING WITH AN ADVISOR.
Probably the most important decision you will have to make is who to work with as an advisor when setting this up because whoever that is should be someone who is committed to working with you not just now, when we are setting it up but regularly into the future. It's a bit like running a car; if you don't service it regularly and keep topping it up with fuel and oil, sooner or later it is going to let you down.
So this is my approach. All of my clients receive a monthly statement of all the investments that I monitor for them. I have just over Protected content clients so you can imagine that is a fair amount of work that I do personally. Only by doing it personally do I feel that I am always in touch with what is happening to each portfolio so that is fundamental to me. Each client usually receives either a visit or a telephone call at least every three months so we can discuss the actual performance and progress. I issue a newsletter every month and the monthly valuation is issued mid month every month.
Clearly, it is good to think about this early and I would suggest that it would probably be useful for us to talk if you wished to take this further because there are still quite a few things I need to know about you before we get moving and I can only really do that by having a conversation with you. It is not so much factual stuff that I need to know, it is how you feel about things in general that I need to understand so that your plan can be unique to you and it is something that we work on together over the years as a combination of several different investments rather than the initial regular savings plan that we would likely set up.
FREE ASSESSMENT AND ANALYSIS
To obtain a personalised assessment of your current retirement planning and future requirements to meet your goals or to establish your personal retirement planning goals please contact me: Protected content