As life expectancies increase, expatriates need to consider longevity risk when planning for retirement. We take a look at how to tackle your long-term financial planning to ensure that you don’t run out of money when you stop working.
What is longevity risk?
Longevity risk refers to the financial uncertainty that arises when individuals live longer than expected, potentially outlasting their retirement savings.
With life expectancies increasing, longevity risk is a growing concern for individuals planning for retirement, especially in a world where state pensions are diminishing and the burden of ensuring you don’t run out of money in retirement falls on your own shoulders.
World Health Organisation figures for life expectancy at 60 i.e., those already retired or approaching retirement, shows that in many developed nations, including Japan, Australia, Spain, France, and Canada, the average sexagenarian can look forward to 25+ years of life. Those that live the longest will need to support themselves for four decades or more in retirement.
And yet, many studies show that few people have adjusted their retirement savings to account for longer life expectancies. Fidelity’s Global Retirement Survey gives a retirement readiness score for households in different countries. It showed that 41% of households in the UK, 37% of households in Hong Kong and 37% of households in Canada are unprepared for retirement.
Longevity risk for expatriates
Certain factors add complexity to retirement planning for expatriates, leaving them particularly vulnerable to longevity risk and outliving their savings. These include:
- Pension complexity – If you have worked in multiple countries, you will have contributed to different pension systems with varying eligibility rules, withdrawal restrictions, and tax treatments. Some pension plans might not be transferable, while others could be subject to foreign taxation, making it difficult to consolidate your retirement funds efficiently.
- Healthcare costs – Back home, you may have been able to rely on a national healthcare system, whereas as an expat you will need private health insurance, which can become costly as you age. The alternative is to fund medical expenses out of pocket, a huge and inadvisable risk. Long-term care costs, like assisted living or home care, also need to be factored into your retirement plan.
- Currency and economic risks – Retirement savings denominated in one currency may lose value when converted to another, especially in times of exchange rate volatility. Many Americans living abroad are currently feeling the effects of a falling dollar. Inflation can also erode your purchasing power, particularly if you retire in a country with high living costs or economic instability.
- Social security and government benefits – You may have lost access to benefits like social security, pensions or government-backed financial assistance when moving abroad. Understanding eligibility and portability of pensions and other benefits is crucial to planning for your long-term financial stability.
Mitigating longevity risk as an expat
The key to mitigating longevity risk is comprehensive financial planning, including cashflow forecasting. Given the complications outlined above, most of us will struggle to do this alone, which is why we recommend working with one of our professional financial advisers.
Infinity’s advisers use advanced software capable of producing detailed and personalised cashflow forecasts that provide a clear, forward-looking picture of your financial situation. By accurately projecting income, expenses, and investment returns, these forecasts enable clients to visualise, in a graphical format, precisely if and when a shortfall may occur. No more guesswork, you’ll know if you have the financial resources sufficient to sustain you through retirement.
Of course, our advisers don’t just identify potential risks; they proactively develop strategic solutions to address them before they become problems. Whether it’s adjusting your spending habits, rebalancing your investment portfolio, or helping you to establish additional income streams, their expert guidance will give you the confidence to plan for a long and comfortable retirement in which you won’t run out of money.
If you don’t feel retirement-ready, why not have a no-obligation chat with one of your advisers to discuss how we can help you face longevity risk head-on and devise a strategy to get you where you need to be.
A leading provider of expat financial services and wealth management services across Asia.
