Can we talk retirement plans for those who live and work in the field?
Replies: 12 - Last Post: Apr 19, 2012 6:50 PM Last Post By: zzark
Apr 14, 2012 11:33 PM
Can we talk retirement plans for those who live and work in the field?Hey all,
So my passion is travel, which has served me well in my career fields first in the military, then as an international educator, and finally (and now) as a humanitarian. While I think lots of ESL teachers and NGO workers can put a good portion of their salary aside (I know I can), as we often live/work in relatively poor areas and have many of our expenses (house) paid for, most of us also don't make enough to retire with a huge chunk of cash and/or have pension programs available (none existent at my NGO), which leaves us with significant (although not exceptional) savings, but little plan for a dedicated pension/retirement plan. For those of you in these fields who are starting to think about the future, what plans do you make? Advice? investments? I would love to hear your stories and advice.
-TBri (currently living/working in Afghanistan)
Apr 15, 2012 7:56 AM
1One expectation that many people do not consider is their home country government pension. It is not uncommon for someone to expect to get a government pension and instead get a surprise at age 65 or whenever they thought they would be eligible.
For example, a UK old age pension is entirely dependent on how much you have paid in over the years. It requires you to have paid in 30 full years (I believe) to get a full pension. Many Brits (I'm guessing you are a Brit given your name) ASSUME everyone is entitled to pension regardless of whether they have lived in the UK and paid NI or not. There was an example here on the TT a while ago by someone who had a friend living in Spain who was adamant that he would get a full pension. In fact, he would not.
Canada is another example with a different method of calculatiing their Old Age Security (OAS) pension. Canada actually has 2 government pensions. The first is called Canada Pension (CP) and is based entirely on contributions just like the UK pension. The second though (OAS) is based on residency. So for example someone who has been a housewife and never paid CP contributions might get no CP pension but qualify for a full OAS pension. The residency requirement is 40 years of living in Canada after age 18. You must also have lived in Canada for the year prior to applying.
It is easy to see how these things can affect an expat who spends signifigant numbers of years outside their home country yet expects to qualify for a government pension at some point. What that tells us is that it behoves the expat to do their due diligence in this regard and plan accordingly.
I personally had to return to Canada for a year before applying for example. Once you begin receiving the pension you are free to leave again and live wherever you want.
That brings up another point with government pensions. Canada will pay you anywhere in the world. So the pension is in that regard totally portable. The UK however is a different story. They will pay you anywhere in the world but how much they will pay you varies depending on where you choose to live. If you decided to live in the USA or France (or many other countries) they will increase your pension (index linked) just as if you were living in the UK. If you choose to live in a country with whom they do not have a tax treaty however, the pension will not increase year by year at all. In othe words, you lose the index linked increase. Interestingly it is the ex-commonwealth countries this generally affects. ie. Canada, Australia, etc.
So my wife for example, who will be eligible for a UK pension in a few years will get the full pension at the time she applies but then it will be frozen at that amount in GBP forever. Organizations of people in this position globally have lobbied with the UK parliament to change this obvious inequality without success. It went to the House of Lords a few years ago and was turned down.
Then of course there is the whole issue of whether many governments are going to be able to afford to pay pensions at all in the future. The changes to the qualifying ages upward is the first indication of this issue.
My advice is to know what you need to do to qualify for a government pension back home assuming one still exists when the time comes. Beyond that, invest in a private pension plan of some kind. Another obvious good idea is to own property where you plan to retire. Anyone who owns their home mortgage free can live on far less income than someone who is paying rent or a mortgage.
I personally hate the idea of being a landlord but it may be the only way for many expats to buy a property in preparation for future retirement.
Apr 15, 2012 11:29 AM
2I'm sorry, I suppose I wasn't very clear. I am a US citizen, and know that I wont get a pension since--like the UK--you only get what you pay in, and you are often tax exempt while working overseas (and making below a certain salary, so long as you don't return to the states for more than 330 days a year). I am asking for alternative ways to create a lasting living situation. For instance investments or businesses... or other ideas...
Apr 15, 2012 2:08 PM
3There are many many ways that it can be done - and you are very right in that you MUST look after yourself and create something solid for later. No one can really predict what will happen - and everyone will have different success and failure stories and every investment advisor will have a different scenario. Here's my story (I think most of this has been told before on other queries asking the same).
I paid into a private pension fund for years and using my personal theory - did not put all my eggs into one basket and played safe, however a major player in this field came along, brought out the small companies and amalgamated them - did well until the crash, then froze the funds, now some are still frozen until 2036 but no more input - and no interest. Bummer basically. I just have to live until then to enjoy it. It might buy me a replacement zimmer frame when I get it.
Following my not all eggs in one basket about 20 years ago I found a private but professional group who syndicate commerical property - each property a stand alone company and each one tailored to the particular property and group of investors - some are looking at long term capital gain, others income producing. (They are not sharemarket property syndicates which have had a dreadful history here) The members pay management fees to the syndicate which neutralises the problem of being an absentee landlord and each set of accounts is audited so there is accountability. It has worked really well even in this economic climate. There are pros and cons all explained in the memorandum of understanding and you cannot get funds out quickly unless you sell to another investor at the valuers rate etc etc. The first ones were small buildings, small capital input and reasonable returns, however because I did not touch the income generated on the first ones I now invest in much larger chunks.
Cash - Cash is King but you need to be disciplined about not touching it and accept that interest rates can be rubbish - but it is worth having some tucked away.
Health insurance - you need to look carefully a what may happen if you don't have some sort of long term cover. Not sure how the US works re this but if you need hip replacemens or cataracts or any of the other age related problems - you have either cover or funds set aside.
Residential property. During the years I was away I kept a very basic easy care property (although it still got badly damaged by one lot of tenants). I kept it as a bolt hole to return to if something went wrong. Lived in it till it was tidy again then sold for something more suitable. I hate being an absentee landlord. It is all about having the right manager - don't use family - can create problems - use a professional but if the one you picked leaves the company you often get left with a replacement who may be a dud. Even though residential property goes up and down on a regular cycle - if you buy at the right time and hold - you still have a roof over your head if needed. Perhaps it's the kiwi in me but I hate renting.
Sharemarket - I found it too difficult to monitor the situation while away and while it has some great gains etc it is an area that is really hands on and you may not find that suits your particular situation.
Investing out of your home country can be an option, but it can also be fraught with problems and misunderstandings.
You have obviously given thought to your long term future = just don't do what so many expats do which is live for the moment and forget that the future can be longer than the moment.
Apr 16, 2012 1:01 AM
Apr 16, 2012 5:47 AM
5ohwell's summary is excellent. I would add two classes of investments.
The first is portfolio financial investments. These will be fixed income, bonds, and equities, shares. They should form a sizable part of any long term investment portfolio. If you are choosing the investments it is probably best to keep them simple and minimize trading holding for the long term. Equities have a higher historic long term return than fixed income. There are still quite attractive fixed income yields available.
The other is income real estate. Choose properties with good yields. I would agree with ohwell that it is best to hire professional management. I am most familiar with residential rental properties. A good way to lower the management costs is to buy entire apartment buildings and hire the on site manager yourself. Another good strategy is to buy buildings with low demand and convert them to other uses that have higher rental income.
My general advice is to avoid the herd mentality. Whenever others assume the sky is falling and are dumping certain assets classes heading for the door, my assumption is that the sky will not fall. It has served me well during this extended financial crisis since 2008.
In financial markets, currencies yield interest, not the geographical location. So if you get a USD account it won't matter in what country you have the savings account, the return would generally be the same.
Holding currencies of developing countries entails much more risk because you are then exposed to exchange rate risk. Holding accounts in Turkish lira, you would need to take into account the movements of the lira vs. USD or whatever your base currency. If your Turkish lira account yields 10% per year, you could still end up with a USD loss if the currency is down 15% for the year. You would also have other risks associated with the currency or the politics and economics of the issuing country. That said, as long as you carefully study the investment and know what you are doing, I believe that diversifying into non OECD countries is a good long term strategy. Remember that higher the return, the higher the risk.
Apr 16, 2012 7:34 AM
6As noted, foreign investing is a much more complicated issue and best avoided. However much you know or don't know about investing in your home country, you can multiply the 'don't know' in a foreign country. I invested in Greek government bonds (pre-Euro) at a time that they were paying 24% tax free. When I got out they were down to 13% just before Greece went on the Euro. I would hate to be holding them right now though! It is more by luck and circumstances than by good financial planning that I got out when I did.
People who invested in residential property in Spain back in the 90s were making a killing flipping the properties (mostly condos) before the building was even built. However, the bubble burst and those left holding the bag when it burst lost a great deal of money. I expect the same kind of thing to happen in other countries where 'investors' flock. My point is, you really have no way of knowing when the bubble will burst on investments of that kind.
Regarding alexander_vi's comments on exchange, again, take heed. My wife's UK employee pension has lost 25% in value due to exchange over the last 5 years. The same would be true of any kind of income derived in GBP if you were now (as she is) retired and living in Canada. So it is best to have your income derived in the country you will retire to.
I invested in commercial properties similar to what ohwell is suggesting by the sound of it. For example, I believe that in the US as in Canada (my home country) it is common for half a dozen doctors, dentists or lawyers to get together and buy a property for their office/clinical needs. Finding a way to get in on that kind of deal can be a very good investment as the tenants are the investors themselves and so turnover is not very high and the care of the property more likely.
I had an in that got me into very large properties. Large office and industrial buildings. Owning 5% of each of 10 properties that had multiple tenants means a very diverse basket of eggs. These properties are always managed by professional companies and if in the right locations have high occupancy pretty much always. But finding an in is the real problem.
There are 2 things you want to try and plan for financially, taxes and inflation. Some investments offer tax advantages. That requires a knowledge of taxation that you may need to acquire or pay a good tax accountant to advise you on. For example, income from stocks might be fully taxable while income from property allows more decuctions. Every country will be different. Some investments such as rental tend to go up with inflation while other investments do not.
If I were investing today I would be looking at the Baby Boom market. Last year was the first year of the BBers retirement. 1946 - 2011 = age 65. For the next 30 years they will continue to retire in increasing numbers and anything that services them should do well. So in real estate for example it could be an excellent time to buy in to 'Retirement Homes'. It could also be an excellent time to buy in to false teeth. LOL
Regarding your government pension Travelin, have you investigated the possibility of paying in even when absent from the country? I don't know the rules for the US Social Security but many countries do allow residents to pay in and also top up their contributions. If you have only paid in for a few years it might not be worthwhile but if you have paid in for say 50% of the years required it may well make sense to keep paying if you can.
Another consideration re medical insurance is the 'pre-existing condition' issue. In many cases where private coverage is the norm, as in the US, applying for insurance at a later date may result in not being covered for 'pre-existing conditions'. For this reason, it is important to maintain coverage throughout the years with an insurance provider. For example, I believe US residents who have Cobra coverage and then let it lapse when they quit work and leave the country have been caught out with this when they return to the US and apply to renew their Cobra coverage.
Retirement planning is not just about how to insure some kind of financial security in your old age. It encompasses a great many other factors as well. But ANY planning is better than none so it's all to the good that you are thinking about it now. Many as ohwell says don't do so until it is too late.
Apr 16, 2012 9:49 AM
Apr 16, 2012 1:44 PM
8I like Alex's suggestion of converting old property to better uses, however I didn't suggest it as it to make it work it often requires considerable hands on knowledge, planning permissions etc and being on the premises for some time. Unless you have long sabaticals it may be difficult. The same with an on onsite manager with a block of flats. Unless the person is known, trusted and capable it can turn into a disaster if the employee leaves and you can't get back to sort it out.
Alex's comment on the Turkish Lira reminded me of a problem I saw and heard about so often while based in Turkey. Despite expats having valid wills from their own country, and in some cases Turkish wills , in many circumstances these wills were not recognised (even when made by Turkish lawyers!). The overriding law was that of financial succession planning within the family and contrary to the will the children often came before a widow and non married partners were ignored completely. Many of those with property were seniors who have remarried and had adult children and grandchildren so it became a real mess, particularly if there was conflict in the family and the kids wanted new wife out. I live in a country where a will and last testament is sacrosanct so you can imagine my horror at discovering this.
If you do invest out of the US - be very sure that your eventual beneficiaries will actually get what you wish them to. The other problem with out of area investments is often the tax regulations are complex and require the use of a specialist in that area - often very expensive.
Keep up the good work though with your planning - and before you meet your 'someone' do some more homework to work out a style that suits you and will allow you to diversify and grow.
Apr 17, 2012 2:09 AM
9As it stands, the US social security only requires 40 quarters (10 years) of contributions to be entitled to a pension.
However note that the salary will still be an average of the best 35 years adjusted for inflation. So with only 10 years of contributions, you will be entitled to a pretty small pension. For exemple, if someone made 30k a year for 10 years then left, he would be entitled to a pension calculated on an average salary of:
10 years at 30k = 300k
25 years at zero = 0
There are also a "years of substantial earnings" test which would mean that the pension would be reduced further. Without getting into details, in the situation above, the person would receive about $300 a month.
You may also have to move back to the US for a full year to receive this benefit.
I started with "as it stands" because, given the debt situation in the US, it is likely that there will be some cutbacks. I think that the most probable is by increasing the retirement age but they could as well decide to reduce benefits.
So, my opinion is that in your situation you will receive something from the OAS but it will be small.
The answer changes a lot if you worked in countries that have pension treaties with the US; there are 25 countries with such treaties with the USA: http://www.ssa.gov/international/agreements_overview.html .
Best of luck!
Apr 17, 2012 3:26 PM
Apr 18, 2012 9:15 AM
11Hi Travelinstyle, as far as I know, in the US you can't pay while absent or top up yourself.
If you are transfered temporarily (<5 years) to a country with a treaty, the employer can elect to cover you under US social security instead of the host country's. Since all of these countries have half decent social security, you gain nothing other than "keeping things simple".
Apr 19, 2012 6:50 PM
12Rental properties were my strategy for old age income. And the idea of owning my own home free and clear of any debt. Net wages, though often modest overseas, combined with superb benefits like free housing and low or no taxes made that very possible.
I also got involved with several small businesses (many more opportunities out here in the big world that in my home country) and the combination of everything will take good care of me when I am older.
Montrealer gives an excellent review of Social Security for Americans, some of which even I didn't know until I double checked on his comments. Good info! Worth re-reading.
Most important of all - and an all around good lesson in life - is that you work for YOURSELF and you take care of YOURSELF.
Don't leave it to the "Nanny State" to look after you. It simply won't and soon probably can't even if it wanted to. Contributing to this idea is that many jobs overseas come with one-year contracts - long-term job security is not guaranteed by your employer. Only you can create that.
I don't mean be a selfish lout - "Me me me me" as many expatriates are - but do be a value-added employee. Provide excellent quality work/service and give a little extra - and generally you will find that things will fall into place for you. The selfish people soon fall by the wayside with bitter stories of how things just didn't work out. Often stories of how they "got burned" or "cheated" (how they see it as they didn't get exactly what they wanted). That often means only that their one-year contract was not renewed. You see them all over the internet.
I am a fan of Zig Zigler's great line: You'll get what you want if you help enough people get what they want. and I believe that it is absolutely true.
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