Retirement
“It’s only when the tide goes out that you learn who’s been swimming naked. - Warren Buffet”
This describes the teacher who lived to the hilt and lived like the grasshopper instead of the ants. Do you want to work until you die? Presumably not, which means you must make plans. If you spend your career teaching overseas, repeat after me…
Nobody is going to take care of my future but me.
If you hold fast to this thought, retirement planning should be a no-brainer; you’ll be powerfully motivated.
One bright day in late autumn a family of Ants were bustling about in the warm sunshine, drying out the grain they had stored up during the summer, when a starving Grasshopper, his fiddle under his arm, came up and humbly begged for a bite to eat.
The ants were merciless, weren’t they?
"What!" cried the Ants in surprise, "haven't you stored anything away for the winter? What in the world were you doing all last summer?" "I didn't have time to store up any food," whined the Grasshopper; "I was so busy making music that before I knew it the summer was gone." The Ants shrugged their shoulders in disgust. "Making music, were you?" they cried. "Very well; now dance!" And they turned their backs on the Grasshopper and went on with their work.
So the time to prepare for winter (retirement) is summer (working years.) How will you do this? Just follow three rules:
1. Spend less than you earn.
2. Set up automatic savings and investing.
3. Leave no money on the table.*
*examples of leaving money on the table? failure to max out matching contributions, paying taxes you could have avoided, putting money in the Stupid Fund, enriching your stockbroker with fees…
Options
As always in life, you make decisions based on what you know and feel at the time. This often turns out to be completely wrong. Oh well; you can’t live your life backwards and undo errors. All you can do is give yourself options.
In terms of retirement, these boil down to three different paths:
No matter which path you choose, retirement takes money.
Live out your golden years in your home country, surrounded by souvenirs of your travels.
Retire overseas in a congenial place where the cost of living is low.
Don’t save, invest, or plan for retirement at all, just have a great time and spend it all having fun and traveling. Just ask the Grasshopper how that worked out.
So let’s lay out some financial implications unique to international school teachers.
Retire In Your Home Country
Income Stream
You will no doubt be stunned at the price of just about everything back home: eating out, groceries, cars and driving, clothes, etc. Can you even afford to move back home?
A typical income stream might consist of the following, and the more diversified the better:
§ Social Security
§ Fixed Pension (Let’s hear it for PERS.)
§ Investment Income
§ Rental Income like AirBNB, for instance.
§ Other (Inheritance? Part-time work? Win the lottery? Sale of property?)
Housing And Health Insurance
Given the housing affordability crisis and the ghastly bloated healthcare system in the US, this could be a problem. Issues to think about:
§ Unless you worked for an US Embassy school and were an employee of the US government, you won’t necessarily be eligible for Medicare. Do not miss the enrollment window or you’ll pay a lifelong penalty. Just try buying health insurance on the open market when you’re officially old.
§ Rents and house prices have been skyrocketing. If you do not already own property, can you afford to buy? Rent? Build a tiny house in a friend or family member’s back yard? Move someplace really cheap? Spend the rest of your life housesitting?
Retire Overseas
Or you may never want to return home. There are loads of pros and cons. On the positive side, you may feel comfortable and at home in a particular country. Or on the negative side, you cannot afford to return home.
Change is the only constant.
Regardless of the whys, there are many factors to consider. This roundup from Transitions Abroad covers the territory, especially the Living Abroad by Country link. Also this long list of questions posed in International School Community is illuminating.
1. Your proposed future home country may not want you. Check the required income minimums and resident visa requirements; you might not qualify.
2. Political conditions may change suddenly, like a coup or Brexit or an anti-expat populist government. Your plans can be thrown into an uproar. Are you stuck?
3. You may be eligible for dual nationality, although there are traps here. Can you still travel freely on your home country passport or must you give it up?
4. Research the legalities of your new country. Can you buy property? Will your trust/will from home be honored?
5. Are you eligible for the host country’s healthcare benefits? Will you be liable for local taxes?
6. How about US taxes? You still need to file.
FaceTime cannot replace this.
Then there’s the emotional component. Are you going to go native or hang out strictly with expats? Will you miss your family and grandchildren intolerably? Will your outsider status eventually grind you down? What if you simply cannot master the language?
Read International Living magazine for advice and scour expat blogs. You’ll have plenty of expat company living overseas, based on the thousands of Americans collecting Social Security from abroad.
Nobody else is going to take care of my future but me…
If you remember just this reality, you’ll be fine. But the sooner you get started funding your retirement, the better.
Or…you could just roll the dice, plan to die young, or live like a bohemian as long as your health holds out and you’re debt-free.
Retirement Income
“If things were simple, word would have gotten around.” - Jacques Derrida”
The answer to a comfortable retirement actually is simple, but definitely not easy. Let’s figure out where will your money come from in retirement?
From TravelHacking Teachers blog. Living the international school high life.
“If I offered you a job with no social security, no pension, no 401K, no contribution to an IRA, would you take it? If your answer is, “Yes,” then welcome to international teaching!”
Income Sources
Social Security
Social Security was never ever intended to provide a full retirement. However, read Andrew Hallam’s estimation of how an average Social Security income is functionally the equivalent of $800,000 in the bank.
Estimate your benefit assuming you have earned enough credits before you began to teach overseas. You need 10 years of work and paying into Social Security to earn the 40 credit minimum. Verify that you are vested before making any assumptions.
Fixed Pension
These are disappearing or getting skinnier every time state legislatures meets. If you qualify, verify what you can expect upon retirement. Not every international school offers retirement matching, but if they do – max it out.
Rental Income
Collecting rents beats paying rent; this income could be your retirement security.
Perhaps you have accumulated one or more rental units over your working life, or kept your home; this ISR thread might encourage you to take this path. You figured out a way to manage the property from halfway around the world and collected the rents all those years.
Now you can either save the management fees and do the work yourself or sell the property to fund your investment account. Either way, these rentals can provide income.
Or you can move into one and remodel it to make a home for yourself. Or if the house you own is big enough, you can become an AirBNB host.
Other Sources of Income
Better not count on winning the lottery or inheriting a bundle, but you never know. However, depending on at what age you return home, working part-time will pad the budget, get you out of the house, and might actually be fun.
Investment Income
Priceless and actually readable resource.
You probably will need a million dollars. But with the miracle of compound interest and index funds, this is not impossible. I am not a certified financial advisor of any sort, but I have come to the same conclusions as Warren Buffet (bazillionaire) and Andrew Hallam (author of the wonderful Millionaire Expat.)
K.I.S.S is an acronym that works pretty well for most things in life. As it turns out, keep it simple, stupid works brilliantly for financing your retirement investments.
You can read academic studies galore, personal finance books and articles. But the research is plain and can be summed up in three basic principles, to paraphrase Hallam:
1. Invest in a diversified portfolio at the lowest possible cost, meaning an index fund which tracks the market.
2. Reallocate once a year and do not speculate, as you are unlikely to successfully time the market. Or just invest in a target-date index fund and let the professionals adjust allocations for you.
3. Pay yourself first and make saving and investing automatic. Take advantage of compound interest. Watch this illuminating video to appreciate its power.
Fantastically successful investor Warren Buffett says you can’t time the market.
Don’t just listen to me, listen to Warren Buffet. He ran a $1,000,000 experiment over 10 years testing passive or index investing which tracked the market (125% gain) vs. a collection of actively managed hedge funds meaning your broker collected fees (38% gain.) If it were a horse race, the brokers would be behind by two laps.
Buffet avoided the biggest mistakes ordinary investors like us must avoid:
1. Diversified by spreading the risk over the entire stock market.
2. Held fast even through the 2008 crash.
3. Paid minimum fees.
If it works for Warren Buffet, it will work for you. Let me just repeat – ensuring a comfortable retirement is simple, not easy.
School Retirement Plans
If the school provides a match, maximize your contribution. Just watch fees, choose the lowest-cost product, hold your nose, and continue to invest on your own in addition.
When you move schools, think about rolling the fund over into a 401K when you can. Do not withdraw the cash, which is a short term decision with long-term negative consequences.
Human Nature
“It is human nature to think wisely and act foolishly. - Anatole France”
Monkey see…
What gets in the way of investing successfully is emotion, not a surprise. Two suggestions here. First listen to Andrew Hallam and “close your eyes, close your ears.” In other words just ignore salespeople and the media. It will just be upsetting and you’re never going to beat the market.
Secondly, don’t rely on discipline but on habit. In other words set up automatic index fund purchases, then don’t think about the results/ receive notifications/make any changes until once a year on your birthday.
Once a year on your birthday readjust your allocation (US stocks/international stocks/bonds) and forget about the investment until your next birthday.
Debt Repayment
“Rather go to bed without dinner than to rise in debt.
Benjamin Franklin”
For those of you with student loans, emotion can be a powerful motivator. The intense emotional drag of this burden and the equally intense relief when they are paid off is indescribable.
There are many debt repayment calculators, like the Debt Snowball Method, to help you plan. Also read this post from Amanda on the hard-headed thinking and tradeoffs she took into account in making the decision whether to pay off student debt or save for retirement.
Both the Grasshopper AND the Ant
So there you go, in a nutshell. You can fully enjoy the pleasures of expat life, like the Grasshopper, because your money is working away behind the scenes, like the Ants.
Overall? Give yourself options on the how and where of your golden years; you never know what changes lie in wait. To build a retirement income, start early, stay the course, avoid buying your broker a yacht, and rely on the miracle of compound interest. Good luck.
Nobody else is going to take of your future but you…
Resources
You may become interested, even addicted, to the financial independence and investing world. Here’s a roundup of influential, inspiring, and informative resources:
Millionaire Expat: How to Build Wealth Living Overseas. Andrew Hallam. - He knows what he’s talking about.
Your Money Or Your Life. Vicki Robin - Granddaddy of financial independence books, subtitled “transforming your relationship with money,” which I believe it actually can.
The Millionaire Next Door - Old, but charming and inspirational. Why your plumber drives a 10-year old car but his net worth is $2.5 million.
Mr. Money Moustache - Financial freedom “through badassity” pretty well sums up the tone, but the information is wide-ranging.
The Basic Facts - Napkin Finance
Investment Advice - Investopedia, Motley Fool