Pension Planning for Expatriates
After all, you always have to remember that the earlier you start, the bigger your chances of spending your autumn years with the level of comfort you desire (and no doubt deserve). Many people might shrug off the topic as they do not see any urgency to start planning. Or they are relying on what the national pension in the social security programs of their home country or maybe their company pension plan has in store for them. While this may work out for people who spend their entire lives paying into the same social security system – although even then, their retirement years will not always be luxurious – expatriates oftentimes have to take matters into their own hands.
While you might be in luck if you do not move from country to country very often, “serial expats” should waste no time seriously thinking about how they want to pay for their retirement. This is due to a variety of reasons connected to the international lifestyle:
- Your country of origin might not have social security agreements with the countries you work in, making it hard to transfer or access all the contributions you have made worldwide.
- You might not be able to enjoy the tax benefits for retirement provisions available in your home country, or face large bank transfer fees.
- Your company retirement plan might not be transferable to another country or premiums might not be payable in multiple currencies, meaning you might lose money on unfavorable exchange rates.
In addition to the above, there are also a number of practical concerns that expats need to keep in mind when thinking about their retirement provisions. To name just one example, handling the bureaucratic side of your retirement provisions can be a headache when doing it from abroad, e.g. in case you need to have details changed.
However, if done right, your pension provisions might even enable you to go into retirement early – many expats receive respectable remunerations for their time abroad, and choosing to save and invest that disposable income wisely might pay off.
International Pension Plans and Savings Plans
Luckily, the special circumstances that internationally mobile employees are in have been recognized by many large employers sending expats around the world, and many of them offer international pension plans. As there is no “one size fits all” solution to retirement planning, much less for expatriates, the range of possible provision solutions is rather large. However, the modus operandi of most international pension plans is rather similar.
The insurance provider or bank will invest your contributions – which are almost always voluntary and payable in multiple currencies –as well as your employer’s contributions into funds varying in risk. You get the choice between a number of different investment possibilities from which you can pick according to your preference. The benefits are clear, as this can make for respectable returns, but it will also leave your provisions susceptible to market fluctuations. If your employer offers an international pension provision, make sure to discuss it in full detail before agreeing to anything.
If your company does not offer such a plan, or if you are a freelancer, entrepreneur, or contractor, your best shot is taking care of your retirement provisions yourself. Our article on international savings and retirement planning offers a number of useful pointers that should give you a good idea of what to look for, and what the benefits and possible risks of the most popular option, international savings plans, are.
Keep in mind that both the above options have various ways to access your savings. Many international pension or savings plans are not designed to run until you retire, but only for a predetermined period. More often than not, you can then have the lump sum of your savings paid out to you, or opt to receive an annuity. Before you settle on a specific offer, make sure to ask about this important detail!
Other Popular Pension Provisions
There are a number of other ways expats take care of their pensions. In our article on the topic, we briefly discuss how the benefits of life insurances make them one of the more popular pension provisions. Another wildly popular option is real estate, be it in a country you have previously lived in as an expat, in your home country, or in the country you are planning on retiring in. However, real estate comes with an inherent risk, and the idea of buying a house or flat not to retire in, but to sell for profit, is best discussed with a professional in the field.
Questions to Keep in Mind When Choosing Where to Retire
Of course, your provisions are not the end of your pension plans. Sooner or later, you have to decide on where to spend your retirement years. Many expats opt for a country they enjoyed living in when they were still working, or a country with perpetually nice weather and delicious food. Preferably both! While ultimately your personal choices will dictate your decision, you should keep a number of things in mind. In that way, you won’t unwittingly and needlessly lose a portion of your savings on foreseeable factors, such as
- possible extra taxes in your destination you did not calculate for (e.g. wealth tax)
- whether or not you are eligible to receive any contributions you have made to social security funds in third countries
- how you will take care of medical bills and other healthcare expenses
- how the country you retire in handles wills and inheritances for your children.
The topic of pension provisions might not be the most attractive, particularly for the younger expat crowd, but its vital importance for the later years of your life should be reason enough to start thinking about it very soon!