Financial Planning Realities For The Young Expat

Following the last Net Worth article on the subject of never being too early for the young expat to start their financial planning, there were a number of queries, most revolving around the calculations for financial requirements at and during retirement.

It is not always easy to project forward with these aspects of our financial life, especially when we are relatively young. The impact of inflation is often not really understood when there is little to look back on. An older expat will be able to reflect back to early in his career when his annual salary was perhaps £1,000, a respectable sum in the early seventies. Today it is not uncommon for the modern expat to contribute £1,000 per month to his pension plan. To many this may be unfathomable. However, it is true.

So, let me look at a real situation to demonstrate to you how you can make a meaningful plan for yourself. Take Steve, a 35 year old expat in his fifth year of assignment. He has a sensible plan to retire at 60 but cannot say yet where this may be. He has a potential fiancé who is a Thai national so for the time being he assumes it is Thailand.

I have carefully profiled Steve and have an understanding of his overall situation. He has a good job in the oil industry and has so far accumulated cash reserves of around £50,000. This creates a solid rainy day fund which can be accessed quickly should the need arise.

Steve feels that if he retired today, he would need THB 200,000 monthly income. That equates to around £48,000 pa. At an agreed inflation rate of 4%pa, his £48,000 income, in the first year of retirement 25 years from now, would need to be £127,960. Each year it would then increase a further 4% with inflation, making £133,078 in the second year, £138,401 in the third year and so on.

Remember, inflation does not retire when you do.

We now need to calculate a reserve lump sum which will generate the income Steve needs to fall back on when he reaches his retirement age. This amount needs to last him his entire remaining life. I do not know how long that will be but I must assume that Steve will live to 100. This is highly likely for the majority of expats in their thirties today.

Calculating a reserve lump sum is difficult but not impossible. We have to assume a constant inflation rate and from retirement, in 25 years’ time, a constant growth rate on the accumulated retirement pot. Steve needs to accumulate a whopping £4m. This is now beginning to look impossible. However, Steve also has the phenomenon of compound growth on his side. Inflation will also work in his favour in some ways in that his salary will increase as the cost of living increases. This will likely enable him to save more as time progresses.

Rather than give up and leave this to another day, Steve needs to persevere and calculate how he can achieve this apparently mountainous task. He knows that he can afford to save £1,000 per month today. If he increases this by 10% per year so that in year two he saves £1,100 and year three £1,210 per month, this will certainly help. His fund will grow by compounding which will also help a great deal.

However, we must not forget that Steve pays UK national insurance contributions to protect his state pension and that he is enrolled in his company’s private pension scheme, so we can include these income projections from his retirement date onward.

Taking the combination of these factors and projecting his savings plan, Steve will accumulate some £2.6m when he reaches 60. Combined with the regular pension payments he will receive during retirement, this will be sufficient to make this a firm plan and a solid start.

Steve will now need to work with me carefully and have regular reviews to ensure he is on track. Most financial plans need to be flexible because we know that things change as we go through life. There may be a family, a property purchase, promotions. Therefore I will advise Steve not to take on any structured savings plan product for too long a period. The best way is actually to commit to shorter, more manageable plans which will mature and give him a number of single pots to build on and use for diversified investments as he goes along. The point here is that Steve retains far more flexibility when going into the unknown future.

There is also another factor which can assist you a great deal and this is known as dollar cost averaging. I shall address this aspect of investing soon.

Meanwhile no matter what your age, it is never too late to start accumulating wealth for your retirement. To those who say they will never retire I say perhaps you have your head too far in the sand to look in the mirror.

Remember, if you fail to plan you are actually planning to fail.


Questions to the author can be directed to PFS International on 02 653 1971 or email to

Andrew Wood has been an expat in Asia for 34 years and is Executive Director with PFS International. He has been writing Net Worth articles for six years and has made a significant contribution to the PFS library of financial service articles dating back over nine years. These articles which cover the complete A-Z of financial planning are available to readers on request.

2 Comments to “Financial Planning Realities For The Young Expat”

  1. Johannah 5 November 2013 at 5:21 pm #

    Thank you for this article.
    I would like the newsletter

  2. PFS International 5 November 2013 at 6:04 pm #

    Dear Johannah, I will add you to our distribution list.

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