Expat Financial Planning: Strategies for Boosting Your Savings
By Peggy Creveling, CFA and Chad Creveling, CFA
A recent Deloitte Global survey on consumer sentiment shows that since the pandemic, there has been a fundamental change in people’s attitudes toward the need to save more, both in short-term savings for emergencies, as well as savings for longer-term goals such as retirement.
The fact that there is a retirement savings short-fall is not new – countless articles have been written stating that most people are just not saving enough to support a comfortable lifestyle in retirement. People are generally living longer and spending more time in retirement, while having less public and private sector pensions to rely on. Meanwhile, investment returns have been uneven.
What is new is that people now are expressing a desire to do something about it. And it goes without saying: if you haven’t been saving already, the best time to start is now – the sooner you get started, the easier it will be. To help, below we’ve listed some simple steps to begin your savings plan.
1. Set and Prioritize Financial Goals.
To help focus your attention, the first step is to set financial goals by deciding what you’re saving for—where do you want to go with your money? The key to setting financial goals is to be as specific as possible and answer questions like who, what, when, and where. Determine amounts and time frames. For example, where do you want to retire? How much will your retirement lifestyle cost per year? Do you plan to pay for college for your kids, and what will that cost? Will you buy or rent a home, and what are the costs involved?
Draw up a list of ideal and acceptable targets. Prioritize. Not all goals are equally important. You might want a BMW, but you could live with a Honda if that meant a more comfortable retirement. There are many ways to fund college for your kids (including borrowing), but you can’t borrow to support your retirement. For more details, see Short-Term Stepping Stones Can Help Expats Achieve Their Long-Term Financial Goals
2. Determine How Much You Need to Save
Ideally, you should determine how much you need to save annually to fund each goal and then, based on the amount you can actually save, allocate those savings to the most important goals first. Determining how much you need to save depends on the future amount you need to fund, the time available for saving and the returns you can achieve on your savings. The longer the time horizon and the higher the return, the less you need to save.
To determine these amounts, you can use an online financial calculator or seek help from a qualified financial advisor. You can also do the math yourself.
3. Set Realistic Expectations for Investment Returns
Many people under-save and fall short of their goals due to unrealistic investment return expectations. If you think you can achieve double-digit returns year in and year out, you will be sorely disappointed. With an average inflation rate of 3% per year, you should be looking at an average return of 5–8% per year, depending on how much risk you’re willing to take with your savings. You won’t get this every year, but when you average your annual returns over time, they will likely be somewhere in this range.
4. Determine How Much You Can Save
Here is where you match your plans with reality. Determine how much you really can save. Most savings will come from salary, but a significant amount can be generated by being more efficient and less wasteful with the money you do have. Create a budget, use multi-currency personal financial software to help, and figure out what you can live without or where you can substitute something less expensive. Savings can come from being more tax efficient, cutting unnecessary costs, and avoiding interest on consumer credit. Most people look for the big things, but cutting several little things can add to big savings.
5. Revise Goals if Required
After determining what you can really save, go back to your goals. What can you afford? What needs to be adjusted? By reprioritizing and adjusting your goals, you can link your actual savings to the attainment of realistic goals. This is a critical step. For most people, there is no clear link between their actual savings and the financial goals they would like to achieve.
6. Build in Slack
No matter how well you plan, life is unpredictable, and stuff happens. You need to build in some slack to your plan. Jobs don’t last forever, people get downsized, emergencies occur, and planned for investment returns don’t materialize. Assume that unplanned events will occur, and build that into your long-term savings plan.
7. Find Out About Employer-Sponsored Plans
Find out what pension/savings plans and other benefits your employer offers and take advantage of them. This includes employee stock options, restricted stock, and deferred compensation plans. Take the time to understand your employer benefit schemes or get help from someone who does. Many times, employers match employee savings in these schemes. This is basically free money, but many employees don’t take advantage of it due to a lack of knowledge, time, or indecision.
8. Find Out if You Are Eligible for Tax-Advantaged Savings
Beyond your employer, find out about the other tax-advantaged savings schemes that may be available to you. This may not be as important for non-American expats, but even non-U.S. expats can be taxed on investment funds left in home country accounts rather than invested offshore. Also, be wary of trading tax savings for the excessive fees found in many offshore “savings/pension” schemes.
American expats, though they live and work outside the United States, may still be able to take advantage of IRAs (traditional, Roth, SEP), solo 401(k)s, 401(a)s, 403(b)s, and other savings vehicles. Either do the homework yourself, ask your tax advisor, or find a financial advisor who is familiar working with expats. Tax-deferred saving can be a big help in achieving your goals.
You may also be able to take advantage of various tax-advantaged schemes in your country of residence. In Thailand there are company provident funds, RMFs or SSFs all of which provide tax-deferred or tax-exempt savings subject to meeting the rules of each scheme.
9. Prioritize Your Savings
Allocate your savings to the accounts where you get the biggest bang for the buck first. Typically, that will be employer-sponsored savings schemes where you receive an employer match. After that, you will be looking at tax-exempt and tax-deferred savings schemes followed by taxable savings. Just ensure you maintain enough savings outside tax-advantaged schemes, which typically levy penalties for early withdrawals, to meet unanticipated expenses and other short-term goals.
10. Beware of Misleading Advertising in the Offshore Markets
Finally, in the offshore world, beware of schemes marketed as a “Savings Plan,” “Pension,” or “College Fund.” Many of these are high-fee insurance-linked investment schemes, where the high fees and predatory nature of these schemes’ various contractual features often negate the benefits. There are many more options available in the offshore markets for investors today, and it pays to do your homework.
Whatever your goals, you will have the greatest chance of achieving them, if you get started early, save more than you need, and plan for some slack in your plan. Just get started.
This article is a revised and updated version of one that appeared previously on www.crevelingandcreveling.com.
About Creveling & Creveling Private Wealth Advisory
Creveling & Creveling is a private wealth advisory firm specializing in helping expatriates living in Thailand and throughout Southeast Asia build and preserve their wealth. The firm is a Registered Investment Adviser with the U.S. SEC and is licensed and regulated by the Thai SEC. Through a unique, integrated consulting approach, Creveling & Creveling is dedicated to helping clients cut through the financial intricacies of expat life, make better decisions with their money, and take the steps necessary to provide a more secure future.
Copyright © 2022 Creveling & Creveling Private Wealth Advisory, All rights reserved. The articles and writings are not recommendations or solicitations, and guest articles express the opinion of the author; which may or may not reflect the views of Creveling & Creveling.