Expats and how to close the pension gap
What is a pension gap? Why is it important? What can I do about it? We address all these points with some practical information in this article. An essential short read for all expats living in Europe.
A pension gap occurs when you move from your home country to work internationally and you do not receive the same level, or sometimes, any, pension contributions in your new home country.
You may be accruing state pension and employer pension contributions. The great benefit of pensions is their long term focus and as such they demonstrate the power of compound interest growing over time. As soon as you stop adding to it regularly, that rate of growth will slow materially. That means less money at retirement.
Its not just the gap, the differences between countries, can also impact your plans.
Once you have closed that pension gap by joining a pension in the country you are now living in, there are a raft of other issues to consider.
Retirement and pension systems can be widely different across countries. They can differ in how the pension assets are managed, when you can access them and how you can access your pension. Personal and employer pension assets in some countries allow you access to some of the capital whereas in other countries like Germany and the Netherlands you are much more restricted and may be limited to only purchasing an annuity income stream.
A key challenge then in managing your various pensions across the world, is translating how your contributions will result in an income that meets your expectations.
The other big issue is when you will get access toy our pension. This can vary widely from one country to another. If you have plans to retire at age 60, you need to consider the impact if your pension country only allows access from age 67, or age 70. You could have up to a decade where you have to supplement your income from other sources.
What can you do about it?
It’s more important than ever that international professionals understand how their pensions in different countries around the world are adding up and what it will mean for their retirement.
To be able to understand whether you’re saving enough through a pension, or how big of a pension gap you might have, you need to understand how much income you will actually need in retirement. Answering this can be difficult.
First you need to have contingencies for when you want to retire and where that will be in the world.
Many people find that their essential expenses are lower in retirement than when they were working but that for the first few years in retirement all that extra time can translate as spending more money on fun things!
There are two other important factors to consider:
Inflation: the cost of living creeps up year on year and 25 years into your retirement, it may well cost twice as much to live as when you first stopped working. You need to make sure your retirement plan can account for this.
Aged care costs: in your latter retirement years you may find your regular costs increase in line with medical and other care needs. Having sufficient retirement reserves can be essential for maintain quality of life and care.
As well as regular discretionary spending, you may have larger one-off costs that you need to factor in, such as updating your home or an extended holiday.
This is where we can help. Going through the process of analysing what is important to you and quantifying your goals into a retirement target, can uncover if you are on track, if there are pension gaps, and what you can do about it.
As an expat it is important to build flexibility to your plan to create income your need and the lifestyle you want, when you retire.
We also help you understand what your options are.
The sooner you review your retirement planning needs, the more likely you are to reach your goals, close any gaps, and live the life you want to lead.
Speak with us and secure your future.
