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Retirement shortfall is endemic around the world. State pension deficits exist across Europe and many countries around the world have been trying to balance their books by raising the retirement age. This inevitably transfers the onus of planning pensions from the state to the individual terms of planning for a comfortable retirement.
The Australian Financial Services Council (FSC) recently quantified, for the first time, the total retirement shortfall in pension savings at more than AUS$1tn. The FSC has suggested that financial advisers should focus on helping people to identify savings shortfalls and calculate how they can be addressed, whilst also ensuring that increased life expectancy is taken into account.
In the UK, the Department for Work and Pensions has reported that there 11mn people facing retirement incomes below the levels recommended by the Pensions Commission. Steve Webb, the Minister for Pensions, was reported as saying that ‘… this is not just a problem for those on lower wages – those on high incomes are just as much at risk of having a lower standard of living in retirement if they do not take this seriously’. Equally, expats in Asia who do not take this issue seriously may find themselves falling into the retirement shortfall trap.
Expats in Asia have the advantage of international savings and investment opportunities that can provide tax efficient solutions for retirement savings. However, if key factors such as life expectancy and cost of living increases are miscalculated or not given enough weight, there still remains the risk of a retirement shortfall.
Good advice and professional financial planning are key to avoiding the retirement shortfall trap. There are also some key points to consider when addressing this issue:
It is essential to have a plan. Without one, it is impossible to know if goals are being achieved and to work out where adjustments could or should be made. Calculate as accurately as possible all income and expenses expected during retirement. Be aware of what options are available to you and which solutions are most suitable to your circumstances.
Delaying your retirement by a few years will not only give you the opportunity to earn and save more, it will also allow your existing fund to work harder for you. Giving your savings more time to grow and take advantage of the tail end of that compound interest graph could be just the boost required to avoid a retirement shortfall. Supplementing retirement income by taking on part time work may also be a possibility for expats in Asia with valued expertise. For some people, it can be difficult to make the transition from full time work into retirement. Taking on consultancy work, remaining with a current employer as an adviser or working part time can not only help to bridge any retirement shortfall, but may also be a desirable way to remain active or connected to colleagues, associates and friends.
Saving more may seem an obvious step to take. Some simple adjustments in your monthly budget may free up more money for your retirement fund. Reviewing your existing financial plans and budgets may highlight areas where your income is not being used as efficiently as it could be. Spending a little time shopping around may reveal areas where savings can be made and increase the amounts available for saving.
Many retirees find themselves in a family home where the children have flown the nest. Taking the opportunity to downsize or even relocate can free up funds that can be used to meet a retirement shortfall. A smaller home or a less expensive location will also change the amount of retirement income required and therefore also contribute to reducing a shortfall.
A review of your lifestyle may reveal areas of unnecessary expenditure. If a retirement shortfall is threatening the financial security of your retirement years, it may be essential to compromise and cutback spending. Identifying areas of ‘wants’ and ‘needs’ is a great place to start making savings.
Retirement shortfalls are a very real, serious and growing concern. It is likely to grow into a major international finance issue over the next decade. However, with good advice, careful planning and disciplined financial behaviour it is an issue that can be addressed and mitigated.
If you are concerned that you may be facing a retirement shortfall, please contact one of our professional advisers. Infinity prides itself on providing client focused and personable service to expats in Asia. We are independent and experienced financial advisers, well placed to help you to plan a financially secure retirement. Get in touch to discuss your retirement planning needs.
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