4 Steps to Successful Retirement as a British Expat

Retirement planning can be particularly complex for British expatriates navigating life across borders.

Without robust planning, expats can suffer sub-optimal investment growth compromised by currency risk, incur unexpected tax liabilities in both their investment accumulation and decumulation phases, and having reached retirement then unintentionally maintain unsustainable levels of expenditure, potentially resulting in financial shortfalls that jeopardise their long-term financial security.

So, in this article we define four key steps to help you secure a successful retirement - by ensuring that you are ‘retirement ready’ and can look forward to enjoying and sustaining the lifestyle you envisage, in later life.

1. Define Your Retirement Goals and Financial Freedom Target

A successful retirement begins with a clear vision. Do you know at what age you plan to retire? Where in the world do you want to spend your retirement years? What kind of lifestyle and interests will you pursue when you at last have the time and the freedom to focus on the things that you're passionate about?

Establishing these parameters will help to determine your financial freedom target figure - the amount you will need to accumulate in savings and investments to sustain your desired standard of living in the country of your choice, from the age at which you want to (have the option to) step back from work.

The cost of living will vary significantly depending on the country you choose to retire to. Some countries offer tax incentives for retirees, whilst the higher living costs and tax regimes prevalent in other countries will result in a significantly higher target figure. Consideration of [later life] healthcare is also important, as access to affordable, high-quality, medical care can differ widely.

By addressing each of these factors, you can define your financial goals as the basis for your planning.

To calculate your financial freedom target figure and find out if you're currently on track click here.

Ensure You Have a Tax-Efficient Drawdown Plan in Place

Many British expats overlook the often significant tax implications of pension withdrawals. Do you know when you will be able to access your pensions, how much you will be able to take as a lump sum - and how much you can potentially withdraw tax-free? Without proper planning, withdrawals could trigger higher tax liabilities in both your home and host countries.

Each country has different tax rules for pension income, and double taxation treaties can impact how much tax you owe. Some expats assume they will pay UK tax rates, only to find that their host country taxes pension income at a much higher rate. Tax-efficient drawdown strategies, including phased withdrawals and leveraging available allowances, help to minimise these burdens and ensure that more of your savings go toward funding your retirement rather than paying unnecessary taxes.

Case Study

Let’s consider Bill, a 45-year-old executive living in Switzerland.

Bill wants to have the option to step back from work at the age of 60 and relocate to France, maintaining his current lifestyle.

He estimates that his annual outgoings in terms of his accommodation in France and living expenses, travel, entertainment, dining out and provision for healthcare will be €112,500 [£95,000] per annum.

Bill uses Forth Capital’s online tool to calculate his financial freedom target number.

Bill establishes that his financial freedom target number, giving him the option to step back from work at the age of 60 and sustain his desired lifestyle until the age of 100¹, is €2.6 million [£2.2 million].

He realises that his financial freedom target number is a higher value than his current savings, investments and pension arrangements are currently projected to provide for him by the age he wants to have the option to step back from work [60] - so to address that gap, he realises that he needs to speak to an international financial planner.

To create a plan for Bill, and bring this to life for him, the financial planner uses ‘cashflow modelling’ technology to help him visualise the accumulation of his investments and savings up to the age of 60 and to illustrate how he can then drawdown income from those investments to fund his lifestyle from that point onwards.

Financial Planning and Tax Considerations

Optimising the Value of his Swiss Pension Withdrawals

Bill estimates that by the age of 60 he will have CHF 1,000,000 [approximately £900,000] in his pillar 2 and pillar 3 Swiss pension funds. Upon leaving Switzerland, he would face a significant cantonal withholding tax of CHF 75,588 [£68,000], having lived in Geneva. However, with the assistance of his Forth Capital international financial adviser, Bill would be able to reduce this tax liability [to CHF 47,888 [£43,000], optimising his withdrawal and its contribution towards his retirement in France.

If you're an expat leaving Switzerland, to learn more about Swiss pension withdrawals click here, and to see how much tax you could save, use our  Swiss Pension Withdrawal Calculator.

Mitigating Currency Risk

Bill’s UK pensions, totalling £100,000, held in GBP, accrued prior to his move to Switzerland, could potentially benefit significantly from being converted to EUR to align with his expenses in France. Currency fluctuations could otherwise significantly impact the potential future value of his UK pensions over the course of the next 15 years. Since 2001, for example the Pound has fallen in value by 24% in relation to the Euro. Working with his international financial planner, Bill could mitigate this potential risk by transferring his UK pension funds into an international SIPP held in EUR rather than GPB.

To learn more about managing currency risk and its potential impact on your UK pension if you plan to retire abroad,  click here.

Assurance Vie as a Tax Efficient investment and estate planning tool

Bill could also potentially benefit from an 'Assurance Vie' policy when he moves to France, a flexible and effective investment and estate planning solution; generating tax-deferred growth and providing the flexibility to withdraw funds when needed - as well as providing him with an effective estate planning solution, reducing the inheritance tax payable by beneficiaries.

To learn about the benefits of Assurance Vie as a British Expat in France  click here.

The financial planner then creates projections of different scenarios, to show Bill how making different levels of contributions to his investments and pensions, stepping back from work slightly later, semi-retirement, or introducing an additional passive income stream, and the adjustments to his assets detailed above, could enable him to hit his financial freedom target number and make a positive impact on the lifestyle he would be able to sustainably afford in later life.

Bill is now on track to achieve financial freedom by the age of 60, confident in the knowledge that he will have the option to step back from work on his own terms, with the peace of mind that his financial future and financial legacy is secure.

Understanding the Tax Implications of Returning to the UK

Bill's international financial planner also makes him aware that if he should decide to return to the UK, then they must carefully plan for the implications this could have in terms of his UK tax exposure. Re-establishing UK tax residency could for example expose Bill's worldwide estate to UK inheritance tax [IHT] at 40%, and gains from the disposal of any assets could result in a 24% Capital Gains Tax charge. By working with his international financial planner however he can strategically manage his residency status and assets to minimise his UK tax exposure.

¹ Research published in the Lancet* suggests that if life expectancy in developed countries continues to increase at the current rate over the course of the coming decades then the majority of people born in the UK since 2000 will live beyond their 100th birthday. With life expectancy increasing in this way, a target age of 100 has been chosen for the calculator, as we want to ensure that all our clients have planned with confidence for a future that is sustainable and affords them absolute peace of mind.

* The Lancet - Ageing populations: the challenges ahead [Prof. Kaare Christensen, MD, Prof. Gabriele Doblhammer, PhD, Roland Rau, PHD, Prof James W Vaupel, PHD] Published Oct 3 2009.

This communication is for information purposes only and does not constitute financial, legal, or tax advice. Please schedule a meeting to receive advice on international financial planning and wealth management.