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Retirement Planning • July 15, 2024

4 Essential Steps for Expat Retirement Planning

Hoxton Blog • 4 Essential Steps for Expat Retirement Planning

  • Retirement Planning

Retirement planning can be complex, even for people who’ve spent their entire working lives in one country. But when you have a career and assets that span multiple continents, that complexity grows exponentially.

It also generally gives expats a far wider range of investment options. But when it comes to retirement financial planning, it can be easy to jump straight to those solutions without really asking the right questions. Because while tax planning, pension strategies and investment structures are all important parts of retirement planning, you can’t do them properly if you don’t know exactly what you’re planning for.

That’s exactly what we’re going to cover in this article. We’ll discuss when you should start thinking about retirement planning, look at the key steps you should take, and show you some tools that can help you understand how to retire early.

When to Start Retirement Planning

Before we can jump into the practical steps for retirement planning, we need to consider whether now’s the right time for you to start. It’s an easy answer, because the best time to start retirement planning is as early as possible.

Obviously the amount you should be putting aside for retirement grows as you get older. Even relatively modest amounts of money in your 20s and 30s can add up over time, but it’s when you get into the 40-55 range where retirement planning should become a far bigger priority.

That’s especially true if your aim is to retire early.

With that said, let’s take a look at the 4 essential steps for expat retirement planning.

Decide on Your Retirement Goals

You can’t plan for retirement if you don’t know specifically what retirement means for you. It’s like trying to get to a destination without a map or GPS. Sure, you might get lucky and end up ‘close enough’, but there’s also the chance that you finish miles away from where you wanted to be.

  • When do you want to retire?

    Do you love your career and want to continue to work part time into your 70s, want to be done and dusted by 55, or somewhere in between?

  • Where do you want to retire?

    For expats and the globally mobile, this is a big one. Of course you probably still won’t tie yourself only to one place in retirement, but knowing where you plan to base yourself will have a big impact on the investment decisions you make.

    If you’re considering repatriating to the UK at some point in the future, for example, there are some key considerations you should be aware of, which we cover in this guide.

  • What kind of lifestyle do you want?

    The typical answer here is “to be comfortable.” The problem with that is what constitutes comfortable will look very different for a billionaire compared to a minimum wage worker. You need to quantify how you want to spend your time and what you want to do in retirement. From there, you can build up an idea of what that lifestyle is going to cost you.

    The more specific you can get around your ideal retirement lifestyle, the more effective your retirement financial planning will be.

Calculate the Costs

Once you’ve narrowed down what retirement looks like, you can start to consider how much it’s going to cost you. You should consider how much you plan to spend on an annual basis, and you can use your current spending levels for basics like groceries and utilities.

For expats, this is another reason why deciding where you want to spend your time in retirement is so important. It will play a big part in the cost of living you have to plan for.

At this point you should also think about any larger, ad-hoc costs you might have. Perhaps you’ll want to take a big, lavish trip when you finally finish work. Or maybe you’ll want to buy that car you’ve always dreamed of, or make a large gift to children.

You should also consider how these costs are likely to change over time. It’s common to see costs increase in the early years of retirement, slowly reduce over time, and then potentially spike again in the later years due to care costs.

It can be a little uncomfortable to think about, but planning ahead provides more freedom in retirement, not less.

Consider Your Tax Options

Now you know what your goals are and roughly how much they’re going to cost you, the next step is to start getting more specific around your investment strategy.

The first port of call are your tax options, as different accounts can make a huge difference on your retirement balance. This level of tax planning can get very complex, very quickly, which is why tax planning is a key focus at Hoxton’ Capital Management.

There are a huge range of tax-effective account options available, depending on your residency and citizenship arrangements. Some of the most common options we help our clients with include:

  • UK Pensions – Contributions to pension schemes in the UK benefit from tax relief and tax-free growth, making them a very tax-effective way to invest. However, may not always be the best option for people looking to retire outside the UK, which is why we help many UK expats with pension transfers.
  • 401(k) and IRA – In the US, 401(k) plans and IRAs can be attractive options. Contributions to these accounts come with a variety of tax benefits depending on the account type, such as the ability to make pre-tax contributions or access tax free growth.

Your goals and objectives, combined with the tax-effective accounts you have available to you, will be the main drivers of your strategy and retirement financial plan.

Use The Right Planning Tools

All of the steps outlined so far can be done far more effectively with the right planning tools. Some scribbles on a napkin are better than nothing, but only just. To really build an accurate picture of your current financial situation and future projections, you need something a little more sophisticated.

Many people rely on the humble Excel spreadsheet for this. This works fine for tallying up totals, but any type of projection or tax calculator is going to need some complex formulas. Even then, visualisation options and data accuracy isn’t great.

You can find some wealth calculators online that will forecast your pension balance or retirement income, but there are generally focused on just one specific part of your financial situation, and can’t take into account assets across multiple countries.

It’s these limitations which led us to create a more comprehensive solution, the Hoxton Wealth App.

The retirement planning app offers features like investment tracking, retirement goal setting, and access to personalised financial advice. Within the app, the WealthFlow feature will help you see if you have enough assets to live the lifestyle that you want. You can map out and visualise the impact of future life events, build in tax rates, and test out ‘what if’ scenarios to stress-test the integrity of your journey towards financial independence.

How Can We Help You?

If you would like to speak to one of our advisers, please get in touch today.

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BONUS

How to Retire Early

So maybe you’ve gone through this process and you’ve realised that you’re not going to be able to retire as early as you’d hoped. Or perhaps you’re tracking well, but you want to see if you can knock a few more years off the timeline.

Well, retiring early doesn’t have to be an unachievable dream. All it takes is a clear goal and a focused strategy. If you want to know how to retire early, it comes down to this:

Increasing your savings rate

There’s no secret here. If you want to retire early, you have to save more. But just because something is simple, doesn’t mean it’s easy. Allocating more money to savings and long-term investments means allocating less money elsewhere. You’ll need to decide what areas you’re prepared to cut back on to make it happen.

Improve tax efficiency

After paying more money in, the second best thing you can do to retire early is to reduce the money that goes out in the form of taxes. This is all about the right tax planning strategy. For people with access to accounts in a range of different countries, this could mean allocating savings across multiple jurisdictions. It could also mean effective allocation of assets within the family, either by holding assets in your spouse’s name or considering structures like a family trust or investment company.

Adjust objectives

A simple way to retire earlier is to adjust your goals in retirement. Dropping your income by 20% means that the same amount of assets will last you substantially longer in retirement, without having to change anything else in your retirement planning strategy.

Of course, it does mean having less money to spend when retirement comes. Whether that’s the right call depends on which you value higher, more years of retirement, or a higher income for fewer years.

Get the right financial projections

You can do all of those things, but you’re still putting your finger in the air and guessing if you don’t use a proper planning tool. The best way to retire early is to create a forecast that shows you how to get there. Then it simply comes down to following the plan.

  • Retirement Planning The Right Way

    If you want to have the best retirement possible, you need to plan for it. Getting specific around what retirement looks like for you, understanding what it’s going to cost, and laying out exactly how your current finances stand will create the foundation for a solid retirement financial plan.

    With all that in place, you can leverage tools like spreadsheets, retirement calculators or the Hoxton’s Wealth App to build a strategy that allows you to reach your retirement goals.

    And if you need a helping hand in working through this process, or finding the right investments and tax strategies to get you there, our global team is always ready to help.

About Author

Hoxton Wealth

July 15, 2024

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