When we’re caught up in day-to-day life, with its plethora of hectic work and family commitments, it can be hard to imagine a time when everything will have slowed down. But, one day, the children will be grown up with families of their own and we will have retired from our fast-paced corporate lives. Then what? Will you have enough money to ensure a comfortable retirement or will you have to continue working to keep your head above water?
Since the global economic meltdown, retirement has to be approached in a much more proactive way than in days gone by. With Government cutbacks, we can no longer rely on state pensions to support us in our later years; neither can we be assured that our company policies will offer the same rewards that they would have done previously.
And let’s not forget the financial impact low interest rates have had on savings plans, or the fact that we are all living longer these days. Indeed, a recent study by HSBC showed that the average retirement in the UK will last for 19 years, but the average person’s savings will only cover them for seven of those. It’s scary to consider that the last 12 years of your life could be spent in relative hardship; therefore it’s vital to ensure that we grasp the nettle now and plan financially as much as possible.
Where to start?
The most important thing to do when planning for your retirement is simple: start saving as soon as possible. You may think you’ve left it too late to accrue any substantial amount of money for your autumn years, but something is always better than nothing – so focus on the present and get saving. The good news is that there is a huge variety of pensions on the market to suit every circumstance and budget, so you’re sure to find one that’s right for you.
A good financial advisor will talk you through the kind of retirement you envisage for yourself, and how much money you will need to fullfil these ambitions. It may be that you’ll be content with a quiet life of gardening and spending time with the grandchildren, but if you’ve got your sights set on traveling the world, you will obviously need more money in your pension pot.
Set your budget accordingly
Consider your other financial commitments, ensuring that you’re not leaving yourself short by ploughing too much money into your pension. For example, have you taken into account your children’s future university fees, or the potential cost of caring for your own parents in their old age? Would you be covered if you became too ill to work, or if your home was damaged in a natural disaster such as flooding?
It’s also vital to consider rising inflation levels and the fact that the cost of living will inevitably have increased by the time you reach retirement. Life throws all manner of curve balls at us, so do ensure that you’ve taken as many scenarios as possible into account before you set a pension budget.
Onshore or offshore: that is the question
Once you know how much money you can put aside each month, one of your first considerations should be whether you invest your money in a China-based policy or offshore. We always recommend you consider international options over domestic plans, as they can offer you much more flexibility in the long run.
For example, offshore policies will allow you to use a currency or currencies of your choice rather than just RMB. Using the local currency could lead to complications if and when you want to take your money out of China, due to banking controls and foreign exchange restrictions.
There are many other benefits to using international policies, including increased investor protection, greater tax efficiencies and ease of use due to communicating in English. Offshore pensions also tend to be better developed than their Chinese counterparts, giving you more security for your investment.
A variety of ways to save
Whether on- or off-shore, there are a number of different investment options when it comes to saving for your retirement. One of the most popular is a personal pension, which will give you a fixed lump sum when you stop working, with an annuity to be used as a monthly income for the rest of your life.
You may also like to consider a deferred annuity scheme, which is a great way to ensure security as an investor. These plans commence on a specific date at the future, with a fixed interest rate outlined at the beginning of the contract. These are very popular with those who are keen to know exactly how much they will receive on retirement.
If you are not averse to an element of risk, you could invest some of your money into the stock market to boost your pension. This kind of investment can reap bigger rewards than simply saving your cash, while it also gives you greater flexibility and access to your money when necessary.
Put plans in place ASAP
As we’ve seen, there is a huge amount of choice when it comes to planning financially for your retirement. Whatever path is right for you, the most important thing is to get saving as soon as possible, ensuring that you can enjoy the retirement you’ve always dreamed about.
Mark Matlaszek has lived in China for over ten years and is the director of BlueStar AMG in Beijing. He has been helping expats plan for their retirement for the last decade, as well helping parents plan for their children’s future education fees. For more information on the company, visit www.bluestar-amg.com. If you would like a free consultation, contact Matlaszlek directly at mark.matlaszek@bluestar-amg.com.
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Photos courtesy of wickenden, 401 (K) 2013 (flickr)
