Planning for your ideal retirement

Proper pension planning is not optional but essential for almost every expatriate.

Why is that?

The expatriate salary, the bonus structure, the entitlement to leave, the accommodation and schooling allowance provided are all likely to be significantly better than the equivalent benefits back at home. After all, a better financial package is the prime motivator in the decision of most expatriates to move overseas.

The single exception to this rule in many cases is the employer’s contribution to a pension plan for the expatriate. The vast majority of expatriates are left to make their own provision for pension. The total absence of any pension plan is often the only area where an expatriate is worse off than if he / she had stayed at home. Even the mandatory contribution to a State Pension is usually not part of the expatriate package.

There exists a significant risk that an expatriate can be left seriously behind in the provision of pension rights compared to colleagues that never left home.

There is a temptation in the early years to “do it in the future”. Tomorrow or next year often seem like better times to look at pension provision. How to invest? Where to invest? How much to invest? Over what period? These are all questions that probably won’t have clear answers so the temptation is to wait until things become more settled. But the truth is that day never really comes.

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The cost of delay

The single most damaging mistake for a pension investor is to put off starting.

  1. There will be fewer annual or monthly contributions made to the pension if the term is shorter.
  2. Perhaps more importantly, the average time that each contribution has to grow is shorter.

The combination of fewer contributions with a shorter time to grow can cause irreparable damage to the expatriate’s dream of a comfortable retirement.

A modest amount invested over a longer time period can generate a larger overall fund than a higher amount invested over a shorter period. The power of compound interest really does favour the investor that starts early.

However – Beware! It can sometimes be a mistake for an expatriate to commit to saving a large amount of money over a long period. This is why the key to this most important of planning decisions is to discuss it thoroughly with people that can give expert advice, tailored to each individual’s unique needs.

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