How to Transition from 'High Earner' to 'Financial Freedom'

Many high-earning British expatriates enjoy lucrative salaries in key global markets such as the US, Switzerland, Hong Kong and the UAE. However, being a high earner does not guarantee financial freedom.

Without a strategic financial plan, opportunities to grow and protect your wealth can be squandered, significant income can remain unharnessed, and potentially complex cross border taxation if not managed can result in detrimental rather than beneficial outcomes, leaving you unprepared for a sustainable future.

Transitioning from being a ‘high earner’ to achieving ‘financial freedom’ requires you to define your financial goals, understand and seize opportunities [some of which are unique to expatriates], and build a robust financial roadmap to make your wealth work for you.

What is 'Financial Freedom'?

Financial freedom is achieving a position where you have the option to step back from work, pursue your passions, and live the lifestyle you desire, safe in the knowledge that this is sustainable, and you are no longer dependent on active income.

Securing your financial freedom means living life on your own terms with confidence and resilience.

The pitfalls of being a High-Earning Executive Expat with no financial freedom plan in place

As a high-earning British expat executive, you may enjoy a lucrative salary, tax advantages, and an exciting international lifestyle. However, without a robust financial plan, your wealth may not be working as hard as you are.

Common pitfalls include failing to utilise cross-border tax efficiencies, lacking a diversified investment strategy aligned with your long-term goals, and not optimising your decumulation and estate planning - resulting in your assets being subject to punitive levels of tax rather than being passed to your loved ones in the most tax-efficient way possible.

Without a structured approach, you risk increased tax liabilities, and potentially an uncertain retirement and even financial insecurity.

Worked Example

Let’s consider Richard, a 50-year-old executive living in Switzerland.

Richard moved to Geneva 10 years ago to work for IATA with an attractive contract, now affording him a salary of £250,000 per annum. However he has given little thought to his later life planning and therefore has no holistic plan in place to secure his financial freedom.

Richard decides that he wants to have the option to step back from work at the age of 60 and to then relocate to France, maintaining his current lifestyle.

Richard 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 €120,000 [£100,000] per annum.

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

Richard establishes that his financial freedom target figure, 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 €2.8 million [£2.3 million].

Richard realises that his financial freedom target number is a higher value than his current disjointed 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 Richard, 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

Richard 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, Richard 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, learn more about Swiss pension withdrawals here, and to see how much tax you could save, use our Swiss Pension Withdrawal Calculator.

Mitigating Currency Risk

Richard’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 10 years. Since 2001, for example the Pound has fallen in value by 24% in relation to the Euro. Working with his international financial planner, Richard 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

Richard 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.

Richard's financial planner then creates projections of different scenarios, to show him 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.

Richard 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

Richard'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 David'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.

Take The First Step Towards Securing Your Financial Freedom

Your financial freedom starts with a conversation. At Forth Capital, we provide expert advice to help you create a comprehensive, personalised plan to secure your financial freedom.

Contact us to schedule an initial consultation and together we can make your financial freedom a reality.

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.