Home Finance Retirement The magic number: how much to save for retirement as an expat
Last update on August 15, 2019

We all have a magic number, or how much money we need to have stashed away for retirement. This amount includes either capital or income, which allows a comfortable standard of living during those years.

It is of course notoriously tricky to actually calculate what this magic number is, particularly if your expat retirement is some way off. There is no such thing as a crystal ball, telling us how long we are going to live, what our spending patterns are going to be, and what requirements, such as healthcare, we may need.

How much money do you need to retire abroad?

Planning early can help deal with unexpected events later in life. For younger people who are likely to live even longer and face reducing pensions — not to mention the additional challenge of low-interest rates and investment returns — starting to plan earlier for expat retirement is increasingly important. To start, think about the following questions:

  • What state and company pensions can I expect, and when?
  • What are my personal assets, such as savings and investments?
  • What are the tax implications of my retirement funds?
  • What could be the inflation erosion on my assets between now and retirement?
  • Am I expecting an inheritance?

There is also the question of whether to use your home as a personal asset. If you are living in your home and it is not generating income, then it is not an asset. If you decide to rent rooms via Airbnb or sell the house and downsize, or indeed if you have an investment property, then you do have an asset, and perhaps rental income as well. If this is the case, it is important to take into account the maintenance costs and taxation implications on both rental income and any capital gains if you should sell.

If you are expecting an inheritance, it may be wise to be cautious about exact figures. Any injections of cash such as this can and should be used to pay off mortgage loans, increase cash reserves or be invested to provide additional retirement income.

Find the magic number: calculate your retirement income

To calculate your retirement income, it helps to itemise what you spend each week over a three- to six-month period. This longer-term view of expenditure can then be used to shape your thinking — although it should, of course, be possible to exclude which expenses will not apply when you retire, such as mortgage payments and financially dependent children.

Do consider your car or travel costs, too, as you may have to incur the cost of a personally owned car and running costs. Many people choose to use the early part of their retirement to travel, so bear in mind that while you are fit and able, you may wish to explore the world.

Having considered spending, attention should turn to projected income and how much you may receive from state and occupational pension schemes. Add to this any income generated from investments, including rental. If there is a shortfall, you may need to get capital working for you more effectively. Otherwise, you will either need to save more or accept the fact that you will need to work longer or compromise on your lifestyle.

The idea behind all this expat retirement planning is to ensure that you are aware of what you need to do to meet your most important retirement objective: your magic number. Specialist advice is essential for pension savings and other investments. Independent financial advice combined with specialist tax advice can be tailored to your personal situation and needs, especially if you have lived and worked outside your home country.