ww how to make your retirement worries disappear
TRANSCRIPT
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HOW TO MAKE YOUR
RETIREMENTRETIREMENTWORRIESWORRIES
DISAPPEARDISAPPEAR
A publication by
HOW TO MAKE YOUR
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CONTENTS
What this means for you
Set goals, plan and take action
Case study: Wendy Lee
What’s next?
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WHAT THIS MEANS FOR YOU
Life as an expatriate woman can be exhausting.
Between work, looking after the children, keeping up with friends and thesocial commitments of your and your husband’s job, it can be easy to let somethings slide by.
Unfortunately, financial planning – particularly retirement planning – is oftenone of those things.
The trouble is, not making proper provision for your retirement can havedevastating consequences later on.
All too often, people approach us for advice when it is too late. We then have todeliver the dreadful news that they can’t afford the home they want, that theywill have to keep working for another five or even ten years and that theysimply won’t be able to enjoy anywhere near the same quality of life they haveat the moment.
And it all comes down to a lack of planning.
However, it’s not too late for you to get your retirement plans on track. Bytaking action now, you will be making a positive step towards securing thefuture you and your family deserve.
With this guide, we aim to provide you withthe information you need to start to assess yourcurrent financial situation and, hopefully, to
make more informed decisions about whatnext steps you need to take.
Rebecca SteeleAES International
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SET GOALS, PLANAND TAKE ACTION
This may sound obvious, but the first thing you need to do is understand whatyou want in later life. Not just sunny beaches, endless holidays and Piña Coladaon tap, but a practical consideration of how much money you will require forliving expenses and luxuries and whether you need to put additional moneyaside for your children.
To do this, we suggest you write a list of your main priorities and goals.
Once you have worked out what your priorities and goals are for retirement,you will be in a better position to decide how you will reach those goals.
To help explain this process, we have put together a fictional case study of a“Mrs Wendy Lee and family” whose own priorities and goals may ring true withyou.
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MEETWENDY LEE & FAMILY
Wendy Lee is a 40 year old British expatriate. She lives in Dubai and is married
to an oil worker called Jack who earns a salary of $150,000 per year.
Wendy is largely based at home – doing part-time consultancy work with acompany she used to work for in London and also looking after her twochildren, John and Jane, aged six and eight. Wendy’s consultancy work earns heraround $30,000 per year, covering some of their household bills, including thecost of a housemaid.
Wendy, Jack and their children live a comfortable lifestyle, enjoying at least
three foreign holidays per year, two nice cars and sufficient income to do thethings they want as a family. They currently rent their home in Dubai, but own aproperty back in the UK.
Jack is 45 and they both want to fully retire in 15 years when he reaches 60.
Jack Wendy JaneJohn
Joint annual incomeof $180,000 (inc. Jack’s salary of$150,000 and$30,000 from
Wendy’s consultancy
work)
Existing savings of$200,000
$100,000 in twopersonal pension
schemes (which havebeen left dormant
for almost five years)
Outstanding mortgageof $180,000 on UK
property, with 10 yearsrepayment remaining
and annual interest of2%. This property iscurrently not being
rented out as the familypays regular visits to
the UK.
CURRENT FINANCIAL SITUATION
THE LEEs
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WENDY & JACK ’SRETIREMENT GOALS:
To retire in15 years’ time
To enjoy a similarlifestyle as they do
currently, with anincome of around$60,000 per year
To continue to payfor their children’s
education – university fees ofaround $80,000
Downsize/move tocheaper accommodation To have regularforeign holidays
To have repaid themortgage on their
UK property whichwill then provide a
rental income
Rent of $50,000per year
Mortgage ofaround $20,000
per year
Householdexpenses
of $35,000
School feesof $10,000
per year
Holidays andother expenses of
$25,000
CURRENT ANNUAL OUTGOINGS OFAROUND $140,000, WHICH INCLUDES:
WHAT THEY HAVE (after expenses)
Around $40,000 leftto save and invest each year
Existing savings of
$200,000
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CASHFLOW MODELLING
Note: For simplicity, we've kept all numbers in current values, but they would be
greater if inflation were taken into account.
The starting point for the Lees was to seek professional financial advice. Theadviser was able to help the Lees work through their aspirations and to buildan actionable, realistic savings and investment plan to make their dreams areality.
One of the ways a professional financial adviser will help their clients reachtheir goals is through a process known as cashflow modelling.
As well as helping you plan for retirement, professional cashflow modelling hasmany benefits.
Here’s what we expect a good cashflow model to do:
Produce a clear and detailed summary of your financial arrangements
Define your family’s ambitions for retirement and the future
Produce an analysis of your personal expenditure planning assumptions,balancing your cash inflows and your desired cash outflows
Plan to minimise your tax liabilities
Estimate future cash flow on realistic assumptions
Develop an investment strategy for your capital and surplus incomealigned with your tolerance to risk, flexibility and accessibility withwhich you are comfortable
Make you aware of the tax issues which are likely to arise on your deathand that of your partner
Work towards achieving and maintaining financial independence
Ensure adequate provision is made for the financial consequences of thedeath or disablement of you or your partner
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-1500000
-1000000
-500000
0
500000
1000000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44
-1,500,000.00
-1,000,000.00
-500,000.00
-
500,000.00
1,000,000.00
1,500,000.00
Here’s an example of what a cashflow model report would look like for the Lees
if they left their money in cash and did not invest.
As seen on the summary of cash flow process, the Lees will run out of moneywhen Jack is 72 and Wendy is 68 and will start incurring debt. This assumesthat inflation is at 0%, their income doesn’t grow with inflation and no future
property or other purchases are made.
Summary of cash flow process
Total Expected Income Lifestyle Shortfall for YearNet outgoing payments from Cash flow
Net worth
2041The Lees will
run out of money
2029Retirement
2041Their net worth
becomes negative
2029Retirement
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ACTIONS
After seeking expert financial advice from their professional, fee-basedfinancial adviser, Wendy and Jack have taken three immediate actions to ensurethey achieve the retirement they want:
Action 1: Structure their existing pension
Action 2: Open an offshore private bank account
Action 3: Invest their money through their offshore
private bank account
ACTION 1: STRUCTURE THEIR EXISTING PENSION
Wendy and Jack are to revitalise their two existing pension schemes, jointlyworth $100,000, by investing them into high quality investment funds.
Specifically, we would recommend the Lees invest in a portfolio of equity-focused funds, as this asset class is more likely to deliver them the desiredreturns over the next 15 years.
The portfolio will also benefit from the impact of compounding. Dubbed the"eight wonder of the world" by Albert Einstein, compounding is simply whereeach year’s interest is reinvested into the portfolio, therefore having a positivecumulative effect on the portfolio over time.
They have also been advised to transfer the two schemes into one product inorder to reduce costs. The two options they are given are to transfer into eithera Self Invested Personal Pension (SIPP) or a Qualifying Recognised OverseasPension Scheme (QROPS).
As the existing schemes are UK-based pensions, they must remain within aspecific pension scheme (they can’t just be taken in cash or transferred to abank account) until the respective beneficiary reaches at least age 55.
The Lees have decided to transfer their pensions into one Joint SIPP and havebought a portfolio of funds which are targeting a return of around 6% per year,after fees and other costs.
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Goal: Additional funding for retirement, heldwithin Joint SIPP
Target return: 6%
Initial investment: $100,000
Forecast value after 15 years: $239,655
Pension Portfolio
85%Equity
10%Fixed
Interest5%
Cash
Wendy ’s pension
Jack’s pension Joint SIPP Portfolio of funds, with 6% pa returnTotal: $100,000
Invest in
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ACTION 2: OPEN AN OFFSHORE PRIVATE BANK ACCOUNT
As well as the significant banking benefits of using an offshore bank account,and the peace of mind that comes from banking in a reputable, third-partyjurisdiction, Wendy and Jack will also gain access to a range of investmentservices at low cost, meaning they can begin to invest their cash efficiently.
Offshorebank account
Investmentplatform
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ACTION 3: INVEST THEIR MONEY THROUGH THEIR
OFFSHORE PRIVATE BANK ACCOUNTInvest using their existing savings of $200,000. We would suggest they build atleast two investment portfolios:
1. $70,000 for university fees
2. $130,000 for retirement
University portfolio
Allocate $70,000 from their savings. This portfolio would be designed toprotect capital, while also growing ahead of inflation.
As this capital is not required for at least 10 years, to prevent the value of themoney being eroded by inflation, we would recommend the Lees initially investin a medium to high risk portfolio. They could decrease the risk in the portfolio
as they get closer to the point at which the cash is needed.
Goal: Protect capital and grow in line with orahead of inflation
Required return: 5% per annum
Initial investment: $70,000 over 10 years
Forecast value after 10 years: $114,022
15%Fixed
Interest
5%Property
5%Cash
75%
Equity
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Retirement Portfolio
Using the remaining $130,000 from their savings, this account would initially
be more aggressive, containing around 95% equities. Just like ourrecommendation in their pension portfolio, we would advise the Lees invest ina portfolio of equity-focused funds, as this asset class is more likely to deliverthem the desired returns over the next 15 years, when the funds will first beaccessed.
This would be topped up with $30,000 of the $40,000 left over each yearfollowing expenses. The other $10,000 would be placed into a cash account asemergency funds.
The amount they invest into this portfolio could be increased after 10 yearsafter their mortgage has been paid off and other expenses decrease, if theywish.
They can also start renting out their UK property, generating an income of$20,000 per year, which could be used to top up their investment each year.
$30,000
to be investedas top up each year
$10,000
in cash accountas emergency funds
$130,000initial investment
from savings
$40,000cash each year
(income less expenses)
broken up into $20,000
from rental incometo be invested astop up each year
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Goal: Retire in 15 years with annual income of at least$80,000 per year for 30 years
Target return: 6%
Initial investment: $130,000
Annual investment: $20,000 from rental incomeSavings from regular income:• $30,000 for the first 10 years•
$50,000 for the last 5 years (the Lees save anextra $20,000 after paying off their mortgagein year 10)
Forecast value after 15 years: $1,588,092
85%Equity
10%Fixed
Interest
5%Cash
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OUTCOMES
Having consulted with a qualified financial planner and having been givenadvice on the immediate actions they need to take to put their retirement on
track, the Lees are now in a much better financial position than if they just lefttheir money in cash.
By investing their money, being conscientious about saving and with the addedbenefit of compounding, the Lees have built a portfolio which will supportthem through their retirement.
They took control of their pensions, consolidating them into a joint SIPP
and growing over 15 years from $100,000 to $239,655
From an initial investment of $130,000, and topping up with $50,000 forthe first 10 years and $70,000 for the last five years, they built retirement
savings of $1.59m by investing into a portfolio specifically designed togrow their capital. With their pension savings, their total retirement
savings are almost $1.83m.
They also have a $150,000 cash “buffer” from their emergency funds,
which could be used to purchase a retirement home if desired.
Additional savings of $114,022 will cover their children’s universityfees.
Because the Lees acted early and started putting their money to work, theyshould meet all of their retirement goals. If they continue to keep their moneyinvested during their retirement, they could continue to grow and protect someof their capital, while drawing an income, meaning they should be able to pass
some of their wealth on to their children when they die.
$1.83 millionretirement savings$150,000cash savings $114,022education savings
What they get after 15 years:
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Get your freecashflow report
What’s next?
There are of course many additional concerns and desires you probably have
around your money which we haven’t discussed in this guide. We know you arelikely to want to leave an inheritance to your children in a tax efficient way andthat you will have questions around how you should invest your money toachieve the best outcomes.
Retirement saving, estate planning and investing are areas of personal financewhich can require expert financial advice. This guide is simply aimed at guidingyou towards the most efficient way for you and your family to accumulatewealth while living as an expatriate – if you have more detailed questions,
please get in touch and we can help.
One piece of advice we can give, regardless of your circumstances, is that it iscritical to get a plan in place, and to execute the plan, as early as possible. Thelonger your investments have to work for you, the more likely that they willmeet your objectives.
We feel so passionately that professional financial advice from a qualifiedexpert can add real value to your retirement that we are offering a free
cashflow report to anyone who requests one within 30 days of downloadingthis guide.
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IMPORTANT NOTE: This guide aims to provide general information on the financial product set
out herein. It is not intended as personal advice but as a short and simplified summary of a
complex subject, and so please do not make any decisions based solely on the contents of this
guide in isolation. Whether or not a particular investment is appropriate to you will depend on
many factors, including your individual needs, circumstances, approach to risk, and capacity for
loss. For a personalised recommendation, please contact AES International.