If you were born just a few decades earlier, retirement planning would have been quite simple. The state and your employer would have taken care of everything. You would most likely be working in the same country and often for the same company your whole life. You wouldn’t need to worry about currency fluctuations, zero interest rates and constantly changing rules.
But you are facing the retirement planning challenge now and many things have changed. The state pension is nothing more than a (still welcome) icing on the cake, far from being sufficient for an average retired person’s needs. Employer-provided pension plans are still the core of retirement savings for most people, but many employers have moved from defined benefit to defined contribution schemes, effectively transferring the risks to you.
Moreover, the idea of working for the same company your whole life is a thing of the past. Many people have worked for a half dozen employers before they turn 30 and in some cases these employers are located in different countries. Being an expat adds another layer of complexity to your retirement planning.
Being flexible with locations is a major strength, which enables you to take advantage of a wider range of opportunities and earn more money. However, this also means that most expats don’t know where they will live in the future and where they will eventually retire. Even when you have plans and preferences, various factors in your professional and personal life can change them very quickly.
Foreign Currency Exchange Rates
When your finances span multiple countries, they will most likely be affected by exchange rates. The last several months have been a good reminder that even major currencies, like the dollar, euro, pound or Swiss franc, can move very quickly. If your financial position is on the wrong side of such a move, you can easily find your retirement savings or your income effectively decrease by 10 or more per cent in less than a year.
Different Rules and Regulations
Different countries have different legislation. Pensions and taxes can be hard for a foreigner to understand, particularly when you also need to consider how the local rules apply to expats and to your specific case. In some countries you are obliged to participate in a state-sponsored pension scheme, other countries require your employer to provide you with a pension plan, while others leave it entirely up to you.
Taxes and Penalties on Transfers
To motivate people to save for retirement, many countries grant various tax breaks or other benefits to those who regularly put part of their pay aside to a pension plan. Unfortunately, when you are moving out of the country and want to access or transfer the funds, there are taxes or penalties, which can be higher than the tax breaks and benefits you have received. The rules must be considered not just before moving out, but before moving into the country and before entering a pension scheme there.
Making Your Pension Location Independent
After many years of expat life, some people find their retirement savings in many small bits in different countries. This can negatively affect costs and returns. Even when you are not sure where and for how long you will work, it is important to have a long-term plan and save systematically. With various offshore pension schemes and international advisors, it is possible to make your retirement planning relatively location independent.