And the parents of the kids they teach? Most make the teachers seem like paupers by comparison. They left their home countries to work abroad in industries such as banking, information technology, oil, cosmetics, pharmaceuticals, and shipping. Many work for firms like Coca-Cola, American Express, Johnson & Johnson, Google, Microsoft, Exxon Mobil – the list goes on.
But not all expats (including millions in Europe) make buckets of money. And even those who do face financial risks.
In 2003, when I left Canada to teach in Singapore, I kissed good-bye to a defined benefit pension. Had I continued with my former job, I could have paid off a home, contributed modestly to investments, and received income for life.
Few expats have that luxury. What's worse, most don't realize they would need millions of dollars in the stock market or multiple mortgage-free rental properties just to equal, for example, the retirement benefits earned by most public-sector workers in Great Britain, Australia, or Canada.
Such benefits are globally waning. But they're still a reality, and most governments offer additional monthly cash. Social Security (for Americans), Canadian Pension Plan (for Canadians), and their equivalents for Brits, Australians, Germans, New Zealanders, and others provide income for non-expatriates. But without maximizing contributions to these plans, we can't fully open mouths to such morsels.
Most countries determine payments based on the amount of income employees earned coupled by the numbers of years they contributed to their home countries' respective social plans. Maximum Social Security payments for Americans, for example, exceeded $28,000 a year in 2012.4 Expats seeking such income from an insurance company would have to invest nearly half a million dollars in an annuity. Those retiring in 10 or 20 years would need a lot more. Inflation is greedy.
Other countries also pay cash benefits to contributors of their respective social systems. Here's a snapshot.
Currencies converted: July 7, 2013.
SOURCE: Complementary and Private Pensions Database, “Private Pensions – OECD.” Accessed April 29, 2014. www.oecd.org/finance/private-pensions/issaiopsoecdcomplementaryandprivatepensionsdatabase.htm.
Departing your homeland for a long-term contract or overseas adventure can leave you hungry – especially if your adopted country doesn't offer pensionable benefits. As a result, most expats need to save more and invest more effectively than their home-based contemporaries do.
Not all geriatric globe-trotters, however, get forced to a street corner with a busker's banjo. According to HSBC Bank's International Expat Explorer Survey, 68 percent of expats report saving more money than they could in their home countries.5 So there's hope for prosperity.
But hope on its own is a lousy strategy. You need a plan. Start by asking the following questions:
● How much money will I need to retire?
● How much should I be saving and investing each month?
● How am I going to invest?
This book provides a game plan to answer such questions, whether you're aspiring to keep up with the Kardashians or live like a Buddhist monk.
One method to create or augment future retirement income is through the stock and bond markets. But many expats get rooked. Silver-tongued investment salespeople peddle dodgy products. Expats are easy targets.
Offshore investment schemes are often slippery pitfalls, rewarding financial advisors with massive commissions, hemorrhaging their clients' profits through high hidden fees and kickbacks. Many expat advisors sell them exclusively, locking unwary folks into 10-, 20-, even 25-year schemes.
Once an investor catches on to the fee-burdened riptide, it's often too late. Those scrambling out of the water face redemption penalties up to 80 percent of their accounts' proceeds. What's worse, many overseas employers welcome financial sharks into their company seal pools. With the best of intentions, they endorse offshore pension sellers, most of whom have a single purpose: reaping the highest possible commissions from unwary workers.
Whether you find a scrupulous financial advisor or manage your own investments, you should understand how the stock and bond markets work. I'll describe how money is made in the markets, answering many of the questions you may have been too embarrassed to ask. The stock market, you'll learn, represents a collection of real businesses. Investing in them doesn't have to be risky, time-consuming, or complicated – if you do it right.
I'll show how to spend just 90 minutes a year on your investments, while thumping the performance of most professional money managers. Best of all, you won't have to watch the stock market, follow the economy, or read the dull financial pages of the Wall Street Journal.
Sound too good to be true? It isn't. Use the Internet while reading this book. Doing so will allow you to verify my warnings about specific investment products. You'll find mountains of academic support for this book's investment strategies.
If you've invested poorly in the past, you have plenty of company. Dan Weil, writing for Moneynews.com, reported that a 20-year study by Chicago-based Dalbar proves most investors are like drowning ducks. While the average U.S. stock earned 384 percent (8.21 percent annually) between 1992 and 2012, the average American investor earned just 130 percent (4.25 percent annually) on stock market investments.6
Such poor investment performance might make the difference between eating cat food and caviar during retirement. I'll guide you toward something palatable.
Once you're armed with investment history and theory, the book's next sections get more specific. I'll show where you can open your investment account, while describing how to make your investment purchases.
As easy, however, as this investment strategy is, some people may still prefer an advisor. I profile some well-trained, ethical guides. Once you understand their philosophy, you'll know what to look for when picking an advisor.
Many people are also concerned with the practicalities of repatriating financial assets. Although this book doesn't cover such concepts, I continue to add articles and useful links pertaining to this subject for those of different nationalities at www.andrewhallam.com.
As an expatriate, you can live better, earn more, and provide for a generous retirement. But you'll need a plan. Fortunately, you're reading it.
Chapter 1
Setting Your Bull's-Eye
When I first started investing, I wanted to retire at 40. I was 19 years old and saving like a lunatic. I won't confess the screwy things I did to pinch pennies. Instead, I want to share what I did right: the part you'll find helpful. I planned how much money I wanted to save, and why. Such planning, even more than the hyperactive saving, made my life a heck of a lot easier.
In 2014, shortly after my 44th birthday, my wife and I retired from our Singapore-based teaching jobs. That doesn't mean we live like trust-funded hedonists. Nor does it mean we'll never work again. It does mean, however, that our private parts aren't sitting in somebody else's vise. A few years back, if our boss had gone on a firing spree, sacking skinny bald guys and bilingual blondes, we would have been fine. We had enough money to survive without working.
When you're financially free, you might choose to keep working, take a long-term leave, or retire. Financial freedom provides options.
If you're not financially free today, set a target.
Begin