Over the last few years, more and more people have come to realise that they must examine their plan for retirement very closely in order to ensure that they are able to retire at a time, and income level, that is in keeping with their objectives. Gone are the days where your employer, or the state, would look after you in your 'golden' years. 

If we skim through the press, we will find a mass of recent news articles reporting how a significant proportion of the population is coming into retirement to find that they are drastically underinvested and, thus, unable to retire comfortably. They find themselves either needing to keep working (if, indeed, that is possible) or dependent upon family or charity in order to be able to make ends meet. 

While it is true that expats will tend to earn more than their local counterparts, the fact that they move from place to place goes against them, as it will often prevent the forming of coherent financial plans, including retirement planning. What it also means is that they build up small bits, in various places, which do not add up to what they would have if they had worked in an equivalent role, in one place, for an equivalent period of time.

So, what is the solution?

In days gone by, it was the case, for most, that your employer pension scheme would make up the majority of what you would end up living off when you retired. The state provision would come in second place, with your own private provision topping up your retirement nest egg. Fast forward to the 21st Century and this has, effectively, been turned on its head. Companies can simply no longer afford the once highly generous defined benefit schemes.

So, expat or not, you need to be taking responsibility for saving for your own retirement. I often say to clients that you should consider future benefits payable from company schemes and the state as the icing and cherry on the cake. You must buy the ingredients and make the main part of the cake yourself - no one else will do it for you.

Once you have decided you do not wish to be dependent upon the state or companies you worked for to provide for your retirement, what are the options? In simple terms, you can either make use of a ‘state sponsored' pension/retirement plan or an international private retirement plan. We will examine both below.

A ‘state sponsored' pension is a pension plan where the local government provides a tax ‘break' to encourage you to save for your retirement. Just how attractive this break is, and whether such a plan is even available, depends upon where you are in the world. When we invest into these state sponsored retirement plans, we do so from our gross income. Depending on contribution limits, this amount is then deducted from our taxable income. So, in the case of the US, you are able to make use of a 401K. 401K's or ‘Individual Retirement Accounts' plans are subject to IRS limits on how much can be contributed, known as the section 415 limit. In Spain you would make use of a ‘Third Pillar Scheme' and in the UK you could make use of an ‘SIPP' (Self Invested Pension Plan). 

Now, this tax 'break' is not really tax relief, more tax deferral. When you access your money at retirement age, you will pay tax on the income that your pension pot will produce. 

The problem for expats is that they may not be able to predict that they will retire in any particular place. Ask a 35-year-old international where he or she is likely to retire in 25 years time and very few would be able to give a concrete answer. Deciding where and when we will retire is very much dependent upon our situation at the time. As there are so many unknown factors that can influence where we will retire, the lack of flexibility within local, domestic, retirement plans can make them seem like an unattractive proposition.

Currently, if you make use of an ‘indigenous' domestic pension scheme, you may not gain access to the funds or move the money before reaching retirement age. You may see this as a problem when you have only made contributions for a short period of time and, as such, are concerned that the value of the investment will be consumed by ongoing administrative charges and will not be effectively managed when you move.

Russell Hammond is an Investment Specialist and senior financial adviser for AES International advising clients worldwide.