May 20, 2024

The Challenges To Retirement Planning For Expats

The Challenges To Retirement Planning For Expats

Planning for retirement can be difficult, especially as an expat if you are unaware of the additional challenges you are likely to face, including tax penalties and complicated pension programs. 

Learn from Thomas Murray, Private Wealth Manager at Melbourne Capital Group, who specialises in retirement planning, as he reviews the distinct challenges expats face. 

What do you think are the biggest risks expats need to be aware of when planning for retirement?

Some of the biggest risks for expats are jurisdictionally specific, and some are more generic. An example of a specific kind is for U.K. expats who are planning to live off their private pension when abroad. 

Most UK pension providers are not licenced, insured, or equipped to deal with you when you are overseas, 

Therefore the features you take for granted in the U.K., such as tax reliefs on your contributions or the ability to invest in different investments, are often not available once you move. 

This often leaves expats with three options: 

  • Purchase an annuity, which in this day and age is not a popular choice. 
  • Cash in the whole pot, which can have huge tax ramifications. 
  • An internationally compliant pension, which can be costly to set up.

Another specific example is U.S. expats living overseas, they have certain restrictions that many do not realise and end up with big tax penalties. For example, they are not allowed to invest in Passive Foreign Investment Companies (PFICs) or they could face a 40% penalty tax

Historically, a lot of international advisors had been unaware of this and recommended portfolios that resulted in a hefty tax bill for the client. For U.S. expats, it is really important to make sure you are advised by a qualified, US-compliant advisor when making your financial decisions. 

What are the more general retirement planning pitfalls?

The generic pitfall is poor planning. One example of poor planning can include not having adequate health insurance until it’s too late.

Health insurance is a must, I’ve seen first-hand how an unsuspecting illness can bankrupt a family that had otherwise seemed to be on the right track. Everyone gets sick at some point in their lives, and dealing with it will be stressful enough, without adding financial concerns into the mix.

Aside from health insurance, another common planning pitfall is failing to stress-test a retirement plan

Retirement planning is something that should be stress-checked by a professional. You need a sufficient buffer to protect yourselves in the event of emergencies, and factors such as inflation, growth rates, and black swan market events all need to be considered. 

Lastly, failure to intelligently invest assets is also a common challenge. Too often we see clients with all their eggs in one basket, be that property, cash, or equity. Holding years' worth of savings in bank accounts is a surefire way to guarantee losing the true value of your holdings, as it is eroded by inflation

Conversely, holding your whole portfolio in property or stocks could expose you to many forms of risk. When your retirement funds are dependent on it, you want to ensure your portfolio is diversified and minimise volatility, whilst still seeking growth.

What are some of the effective strategies expats in Asia have used to tackle key retirement risks?

We return again to poor planning as being a key risk factor for retirement planning. 

Poor planning can result in high tax bills. For instance, Australia will charge capital gains tax on your investments unless they are held in an insurance wrapper for 10 years, which can be set up when you’re an overseas resident. 

The Australian 10-year tax rule allows investments held for ten years to be withdrawn tax-free as long as it is held within a life-insurance wrapped platform. 

With due awareness and consideration, this then should open a perfect window of opportunity for Australian expats living overseas, to set these policies up, fund them while they’re away, and then enjoy tax-free investments when they return to Australia later in life.

What other aspects of retirement planning do you think expats often overlook?

The most understated aspect of retirement planning is the security and peace of mind that it gives you. 

Knowing a professional has vetted your plan and will support you on your road to retirement, takes a huge weight off your mind. 

Our role is to help you achieve your financial goal of a secure and comfortable retirement. As such, we will work to identify shortfalls with a view to establishing a workable roadmap to retirement with manageable investment and savings milestones.

How do you and Melbourne Capital Group help identify the key risks for your clients and help minimise their risks? 

We take a holistic approach to financial planning and start with protection by asking our clients “Are you and your family safe in the event of any unforeseen circumstances?”

Generally, we recommend that you always hold liquid assets to cover 3-6 months of expenses to act as a financial buffer. Alongside this buffer, we will analyse your current levels of protection for you and provide recommendations accordingly.

Once you have a secure base, we look at financial planning: What are your financial goals and your timeline for achieving them? Are you on track to get there or are there amendments to the strategy needed? 

Through these questions, we can get to know our clients better and what their unique needs are to create a personalised roadmap to retirement. 

As international wealth management specialists, we can unlock international assets to ensure they work better or help consolidate long-abandoned pensions held overseas to support our clients in retirement.

There is no one size fits all and we will build a bespoke plan around you. Once it’s built, we stress test it, to help ensure your retirement will be on track whatever the weather.

At the end of the day, every expat’s journey to retirement is unique and we hope to help each one reach their retirement goals.

Retirement planning can be difficult on your own. Whether it’s me or any of our expert Private Wealth Managers, we can help you achieve your financial goal of securing a comfortable retirement. 

Contact me at to schedule an appointment.

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