Today’s life expectancy means retirement could last decades. How can you make your savings, investments and pensions last as long as you do?
By making the lifestyle choice to live in Spain, Portugal, France, Malta or Cyprus, you will want to make the most of what Southern Europe has to offer by enjoying the beautiful scenery and climate for as long as you possibly can.
That may be much longer than you think. According to UK government statistics, life expectancy is the highest it has ever been. Today, Britons aged 65 can expect to live for a further twenty years on average – around five years longer than those at the same age in 1989. By 2039, this is projected to go up another five years.
Not only are people living longer, they are enjoying a lifestyle that is much more active – and arguably more expensive – than the generations before them.
With more people living into their 90s – a four-fold increase in men since 1982, and twice as many women – how can you make sure your money lasts as long as you do?
Getting value for money
Many retirees favour low-risk, ‘safer’ investments like bank deposits in their later years. But with potentially 30 years or more to fund in retirement, this is often a false economy. While the cost of living generally increases over time, interest rates within Europe are currently lingering at or near zero – which means many people with bank savings are actually earning a negative real rate of return.
When the UK interest rate increased to 0.75% in August 2018, it marked the first time since 2009 that rates went above half a per cent. In times like this, with UK rates expected to remain low, savers need to look further afield for returns that can keep up with the cost of living.
Expatriates also need to factor in exchange rate risk. If you have no choice but to take income in pounds, such as your UK pension, while spending euros in your daily life, you may find your money does not go as far as it once did. With both sterling and the euro so vulnerable to Brexit developments, it is more important than ever to have a well-diversified portfolio with a mix of assets, like equities, bonds and property as well as cash.
You should also spread investments across countries, currencies, regions and market sectors to minimise overexposure in any one area. The key is to find the right balance of risk and return for your peace of mind, and to make sure your savings and investments are structured as tax-efficiently as possible for your unique situation.
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Pensions to last a lifetime
For many people, unless you have a ‘final salary’ pension that provides a fixed income for the rest of your life, outliving your savings is a real risk. The State Pension – currently worth a maximum of around £8,500 a year – is unlikely to sufficiently bridge the gap.
There may be ways for expatriates to make pension funds go further. For example, you could consider transferring to a Qualifying Recognised Overseas Pension Scheme (QROPS) or reinvesting a lump sum in alternative arrangements that are compliant in your country of residence. Doing this could offer tax advantages and provide more flexibility for how you can access your money, including the ability to choose the currency of withdrawals. Before making any decisions about your pension, however, it is essential to take regulated advice to avoid pension scams and establish the best approach for your particular objectives and circumstances.
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A taxing problem – not just for governments
Rising life expectancy is also expensive for governments. The higher the proportion of older people in a population, the greater the costs of services like state pensions and healthcare – and the lower the number of taxpayers that can fund it. For governments the world over, the solution usually lies in pension or healthcare reforms and tax increases to finance these escalating expenses.
Higher taxation can be a serious threat to your financial security in retirement, especially when coupled with rising healthcare costs. This is where personalised tax planning is vital to make use of available opportunities – in the UK, your country of residence or elsewhere – to ensure you do not pay more tax than necessary. With many arrangements you can combine your tax and investment planning in one exercise, allowing you to tackle the twin threats of tax and inflation at the same time.
For the best results, take professional advice designed for your unique circumstances and goals. Good financial planning can help put you on track to afford the lifestyle you want for as long as you need, so you can focus on enjoying a long and comfortable retirement in your country of choice.
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This article should not be construed as providing any personalised investment advice. You should take advice for your circumstances.