Why Expats Need Long-Term Savings

As an expat with over 20 years of financial planning experience in the region, I can say with absolute certainty that long-term focus savings are not just important—they are essential. Having lived and worked abroad for so long, and being the son of lifelong expats, I’ve seen firsthand the financial challenges we face. While some advisers might pitch short-term savings, and emergency funds as a flexible option, the reality is that without a robust long-term savings strategy, you’re putting your financial future at serious risk. Completing research on the best and most appropriate savings accounts for expats, the best savings strategy and what long term goals you have is a vital part of this process.

None of my clients that have been here for 10 years+ have ever said at the end of their time as expats in Dubai, “I wish I hadn’t saved that much”…

The Importance of Long-Term Savings for Expats

Living and working abroad offers many opportunities, but it also presents significant financial decision-making. Fluctuating currencies, varying tax obligations, and the uncertainty of life as an expat make long-term savings an important part of the decision process. Here’s why:

1. Financial Security: Long-term savings provide a safety net for unforeseen circumstances—whether it’s an economic downturn, job loss, or health issues. They ensure you’re prepared for life’s uncertainties, no matter where you are in the world.
2. Retirement Planning: Without a well-structured long-term goal, your retirement could be anything but comfortable. The cost of retirement is substantial, and without disciplined saving, you risk running out of funds during your golden years.
3. Investment Growth: Short-term savings may seem convenient, but they rarely offer the growth potential needed to secure a financially stable future. Long-term savings, particularly when invested wisely, benefit from compound interest and market growth, which are crucial for building substantial wealth.

Short-Term vs. Long-Term Savings: Why Long-Term is Non-Negotiable

While short-term savings have their place, they are no substitute for long-term financial planning:

• Flexibility vs. Commitment: Short-term savings offer flexibility, but that flexibility comes at the expense of long-term security. Long-term savings require commitment, but they build the foundation for a stable financial future.
• Access: Short-term savings are easily accessible, which can lead to impulsive spending. Long-term savings accounts, especially retirement funds, often restrict access, which helps preserve your wealth over time. Find the best savings accounts for expats is essential to your overall financial planning startegy.
• Growth Potential: Short-term savings accounts such as banks typically offer low interest rates, which limits growth. In contrast, long-term savings, when invested in diversified portfolios, can significantly increase in value over time.

Global Perspective: Long-Term Retirement Accounts

Retirement savings accounts in major countries are designed to enforce long-term savings with restricted access until retirement. Here’s a look at some key examples:

1. United States – 401(k):
   • Employees contribute pre-tax earnings to a 401(k), which grows tax-deferred. Withdrawals before age 59½ incur penalties, ensuring the funds are used for retirement.
2. United Kingdom – Stakeholder Pensions or SIPPs:
   • These pension schemes offer tax advantages but restrict access until age 55, safeguarding the funds for retirement. Stakeholder Pensions are simple, low-cost options, while SIPPs offer more flexibility for those who want more diverse investments to manage their own investments.
3. Australia – Superannuation:
   • Employers must contribute to employees’ superannuation funds, which are locked until retirement, promoting long-term savings.
4. Canada – Registered Retirement Savings Plan (RRSP):
   • RRSPs allow tax-deferred growth of retirement savings. Early withdrawals are penalized, encouraging long-term savings.
5. Germany – Riester and Rürup Pensions:
   • These are state-supported pension plans that supplement public pensions and are only accessible at retirement age.
6. South Africa – Retirement Annuities:
   • Retirement Annuities in South Africa are long-term investments designed to accumulate until retirement, with restricted access ensuring that the funds are preserved for your later years.

These accounts all share a crucial feature: they are structured to enforce long-term savings, with penalties or restrictions on early withdrawals, ensuring that the funds grow and are preserved for when you truly need them—retirement. Securing and appropriate vehicle and exploring the best savings accounts for expats will help with in this process.

The Cost of Retirement: Real Numbers, Real Preparation

Let’s talk specifics. Retirement isn’t just about not working; it’s about maintaining your lifestyle, covering healthcare costs, and ensuring you don’t outlive your savings. Here’s what you need to consider:

1. Life Expectancy: With people living longer, your retirement savings need to last 20, 30, or even 40 years. This means a substantial nest egg is required. For example, if you expect to spend $50,000 a year in retirement and plan to retire at 65, living until 90, you’ll need at least $1.7 million, assuming no inflation adjustments and ignoring investment growth.
2. Healthcare Costs: Healthcare costs tend to increase with age. Depending on where you retire, you might need to allocate a significant portion of your savings to cover these expenses.
3. Lifestyle Maintenance: To maintain your current lifestyle, you’ll need to replace a significant percentage of your pre-retirement income. Financial planners often recommend aiming for 60-70% of your current income. If you earn $100,000 annually, you’ll need $60,000-$70,000 per year in retirement.
4. Inflation: Inflation erodes purchasing power over time, so your savings need to grow to keep up. A 3% inflation rate can halve the value of your money in 24 years, which means your $1 million in savings could be worth only $500,000 in today’s dollars by the time you need it.
5. Unexpected Expenses: Life is unpredictable, and your retirement savings should account for unexpected costs like home repairs, medical emergencies, or supporting family members. A well-padded emergency fund within your retirement savings is essential.

As you can see from the above, the appropriate calculations, modeling and forecasting is so important. Calculating important factors, goals, and realistic milestones will impact your numbers a lot, so pre-planning and getting these numbers right before choosing the best savings account for expats, is a must. As expats you haven’t necessarily got to source products that include penalties for early access, but it is essential that you set up accounts that you understand are for your retirement and that you commit to them monthly and consider them non-flexible, in terms of access and missing contributions. Voluntary savings, savings when you can, or doing it for short-term periods does not answer the problem and will fail you in your ability to secure your desired retirement. When we are working from home or in domestic countries, these provisions are provided by the government, by our employer, or as a tax-efficient option if we have our own company. As an expat, you have to be the responsible one that sets aside a certain amount each month that has been calculated to insure that when you get the opportunity to retire, this is fully funded during your working life, which for many years, maybe, as an expat. Having large missed contribution periods to your retirement account during life as an expat will not serve you well in your later years in retirement. I urge all expats to have a long-term savings strategy that ensures discipline, lack of flexibility, lack of accessibility, lack of temptation, commitment, and absolute focus on where that money you put aside for each in every month and no destruction should be allowed.

Calculating Your Retirement Needs: An Example

Let’s walk through a basic example:

• Current Age: 45
• Retirement Age: 65
• Life Expectancy: 90
• Annual Retirement Expenses: $60,000 (in today’s dollars)
• Inflation Rate: 3%
• Expected Portfolio Growth: 7% annually
• Current Savings: $200,000
• Annual Contributions: $10,000

As mentioned above, to maintain a $60,000 annual lifestyle in retirement for 25 years (from age 65 to 90), factoring in 3% inflation, you would need approximately $1.7 million in your retirement account by age 65. With $200,000 saved and a 7% annual return, you would need to save and invest $10,000 per year for the next 20 years to reach this goal.

This calculation highlights the importance of starting early and saving consistently to achieve your retirement goals. Like I mentioned above, nobody has ever regretted saving, however people do regret not having started sooner.

Why Commitment to Long-Term Savings Is Essential

Long-term savings aren’t just about discipline—they’re about ensuring your financial independence. Unlike voluntary savings, long-term savings accounts are structured to be out of reach until retirement, preventing you from dipping into them prematurely. The same as a mortgage…. would you pay every month into a voluntary mortgage? No… but when the mortgage is fully paid off, its a huge relief, and this doesn’t differ with retirement.

This commitment is non-negotiable for several reasons:

• No Access Temptation: With long-term savings accounts, the lack of easy access ensures that your wealth is preserved for when you truly need it.
• Consistent Contributions: Regular, disciplined contributions build a substantial financial cushion over time, much like a mortgage or other significant financial obligations.
• Financial Discipline: Long-term savings foster financial discipline, ensuring you prioritize your future needs over immediate wants.

Conclusion: The Vital Role of Long-Term Savings for Expats

For expats, long-term savings aren’t just an option—they’re a necessity. The complexities of living abroad, combined with the significant costs of retirement, make it essential to commit to a long-term savings strategy. Whether it’s planning for retirement, ensuring financial stability, or protecting against life’s uncertainties, long-term savings are the foundation of a secure financial future.

As a 20-year expatriate with deep expertise in financial planning, I can attest that the benefits of long-term savings far outweigh the allure of short-term flexibility. The path to financial security is clear: commit to long-term savings, plan with precision, and safeguard your future with the confidence that your wealth will be there when you need it most. Work with an adviser to choose the best savings accounts for expats, for yourself and that is aligned with your goals.

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If you need more advice then contact Mike Coady today to discuss our solutions and how we can help.

About Mike Coady

Mike Coady is an expat expert based in Dubai and is on hand to help with all of the above and more.

Mike is an award-winning money coach and industry leader in the financial sector.

Qualified to UK Financial Conduct Authority (FCA) standards, a member of the Chartered Insurance Institute, a Fellow of the Institute of Sales Management (FISM), a Fellow of the Association of Professional Sales (F.APS), a Fellow of the Institute of Directors (FIoD) and featured as a highly qualified Financial Adviser in Which Financial Adviser.

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Blog published by Mike Coady.

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