Whether you’re working abroad, you’ve retired to the Dordogne or you’re travelling around the world and enjoying life as a perpetual traveller or private thinker, you’re unlikely to be 100% immune to monetary worries in 2011.
From high inflation to low interest rates, from rising food and energy prices to falling job security, 2011 is proving to be a tough year on a global scale for all of us.
Expats have at least as many money worries as their onshore peers; however, they also have financial advantages if they just know where to find them. In today’s report we’re going to be discussing ways you can avoid the 7 main expat money worries in 2011, and enjoy your life living abroad to the max.
From concerns about an increased cost of living to worries about rising taxes, and from having to face job insecurity to having no state back up when it comes to your retirement income for example, expats really do have a lot on their plate when it comes to money matters in 2011.
Depending on what stage of life you’re at, how much money you have at your disposal and how many others you’re financially responsible for, different concerns will be uppermost in your mind. In this report we’re aiming to cover the main areas of financial concern for the majority of expats…however, this report cannot be all things to all men and women, therefore, if you do have specific monetary issues or anxieties we urge you not to ignore them.
A small fiscal niggle can become a legitimate and serious financial issue if left unexplored and unresolved – so please do yourself and your finances a favour and seek advice or assistance if you feel you need to overhaul any aspect of your monetary position. Please note: this article does not constitute advice.
Issue #1 Affording to Retire Abroad
76% of Expatra readers, recently surveyed about their financial concerns, revealed that they were worried about money matters relating to their retirement. From needing an income to live on to needing to have enough money to pay for medical and care bills in later life, expats are very concerned about how they will ever afford to retire abroad.
In recent years pensions have had nothing but negative press in the UK – from the mis-selling scandals to the collapse of some schemes, from poor annuity rates to worse than expected final invested sums, British retirees have faced some exceptionally tough times and these have been widely reported.
This has put many off the idea of a traditional and restrictive pension, and it has forced others to move abroad to work to earn and therefore save more money to be able to afford a decent retirement. However, as an expatriate you genuinely do have often better, and certainly alternative options available to you for the saving and investment towards your pension.
For example, have you explored QROPS (Qualifying Recognised Overseas Pension Schemes)?
These are British government and HM Revenue and Customs backed pension schemes that have benefits such as no need to buy an annuity…these and other intensive saving or investment solutions can be explored by expats looking for retirement saving options. Speak to a qualified, regulated and independent financial adviser for more information, or read our article ‘QROPS Critical Considerations – Are They Right For You?’
Issue #2 Rising Cost of Living Abroad
From food to fuel, the cost of everything is going up! Expats are certainly not immune to the rising cost of living, no matter where in the world they live – in fact, learning to live with increases in our underlying cost of living is something we’re all going to have to get used to.
Ways to make your money go further include shopping like the locals do in markets and buying from local producers where you can perhaps build a decent client-vendor relationship and benefit from better pricing, stock and customer service, to shopping around for everything.
In the UK there are comparison sites for everything from insurance to travel, from groceries to interest rates – but internationally such sites are not always in place, and a lot of legwork has to be done in-country to find the best bargains. So, why not work with other expats and share your collective knowledge about where you can get better deals.
We heard from some expats in Dubai this week who have done just that with http://www.lowcostdubai.com – alternatively you can post on forums, notice boards at work or social networking sites or your own blog.
The more expats share their knowledge to help others the better – the global expatriate community needs to stick together after all!
Issue #3 Paying for School Fees
One worry that many expatriates face is paying for their children’s education – state schools locally abroad may not be suitable for any number of reasons, an international school may therefore be preferable, or even a boarding school back home. Expats also have to face paying university fees for their children – and all in all, paying for decent education stacks up and costs a lot of cash.
We have been reliably informed by one expatriate facing financial advisory that there are a number of medium term policies ideally suited for many expats to use as intensive saving or investing solutions specifically for children’s educational requirements. Therefore, we urge anyone worried about this particular fiscal burden to begin exploring options sooner rather than later.
More affordable solutions to education include home schooling, having a child ‘board’ with a family member back home, or putting them into the state school system and then ‘just’ supplementing any specific educational needs should they arise.
Issue #4 High Expat Tax
Believe it or not, some countries do tax more than the UK (although it’s getting more of a struggle to name such nations these days, as the rate of tax increases in the UK and the thresholds over which you’re paying more tax fall). However, Britain is not the only nation to try and tax its way out of its massive national debt crisis, and many expats are realising that theirs is no longer a low tax lifestyle.
For such expats what are the options? Well, firstly you need to have an assessment made of your tax exposure and see if there are legitimate ways you can mitigate your obligation. Perhaps local tax rules mean you can keep money offshore and enjoy it tax-free, maybe there are ways you can move assets to a lower taxed jurisdiction, alternatively, what about making changes to your employment contract so that some salary is diverted into a pension or enjoyed as a benefit in kind if this is a) possible and b) taxed at a lower rate in your new nation.
Perhaps the most extreme solution is to relocate to a no-tax jurisdiction of course, but maybe you can ‘just’ defer paying tax on any saved wealth offshore until you’re a lower rate tax payer (perhaps in retirement), or plan to retire to a low tax nation? Explore all your legitimate and legal options with an accountant, tax adviser and/or financial expert. We all have to pay tax, but we’re not obliged to over pay tax!
Issue #5 Job Insecurity for Expatriate Workers
Avoiding job insecurity is pretty impossible…but you can insure or protect yourself with the likes of payment protection insurance, job loss mortgage insurance, income protection cover and having a cash fund built up with enough in it to cover 6 months worth of bills.
Look at what’s offered in the insurance marketplace – but look closely at clauses and the small print. Many policies don’t kick in for at least 6 months which is where your cash savings come in to play, and most policies only pay out a percentage of what you were earning.
The bottom line is that you have to have a financial backup plan in the form of savings you can tap into should the worst happen. Work hard to build this fund up so that you have some peace of mind in an uncertain environment.
Issue #6 Low Interest Rates on Offshore Savings
Interest rates onshore and offshore are currently rubbish – it’s almost impossible to keep place with inflation on cash savings, let alone beat it and enjoy a return on your saved wealth. The good news is that many experts believe interest rates will soon rise…however, are there other ways you can make more from your excess wealth each month?
In speaking to a financial advisory about what options expats have, we’ve been told that there are a number of ways expats can potentially get more. If you’re prepared to expose yourself to greater risk, the potential rewards are higher, if you’re interested in diversification across currencies, you could benefit if the currencies move in your favour. Expats may be able to defer or avoid tax on some savings or investment policies, and depending on how long you want to lock in for, you may be able to get a better rate.
Headline rates are also available offshore, and some advisories’ clients benefit from better allocation deals, lower charges or even higher interest rates given to the advisories by the financial services companies to generate greater business levels.
What all of this means is that you need to shop around, take expert advice and see how your money could be making you more according to your goals, options and appetite for risk for example.
Issue #7 Currency Fluctuation Nightmares
The final issue to discuss today is the one of currency fluctuations. Many expats earn in one currency, but have financial exposure in another. For example, in your new nation you may be earning and living in one currency, but perhaps you have to pay a mortgage ‘back home’ or school fees in another currency.
Expats have to think about how they save and invest from a currency perspective too. This is particularly pertinent for those expats who plan on retiring in another nation and a different currency for example.
We all know currencies can move for or against you – therefore, to protect yourself you may need to look at hedging and fixing. For example, you may be able to save or invest across different currencies you need to have exposure to and therefore effectively hedge against negative currency fluctuations. You may also wish to explore forward contracts with currency companies to ensure future transactions and transfers are done at the most favourable rate currently possible.
Expats can hedge and protect when it comes to currency movements, but expert advice is required on a case by case basis.
As you can see, all expats have monetary concerns they need to be aware of – but the good news is, there are ways to protect your position, potentially advance your wealth and ultimately enjoy the best bits about living, working or being retired abroad.
Seek advice and assistance where necessary and beneficial, and ensure you always read the small print of any policy you’re contemplating agreeing to! Advice should always be sought from those used to assisting expatriates, who are regulated, qualified, experienced and independent.