Did I just hear a "pop"? Did your bubble just burst? have you already reverted to old habits? New Year resolutions are often sources of fun among family, friends and colleagues. Seeing who can make a resolution last the longest can be positive, friendly competition.
These pledges to change are usually short-lived. How many well intentioned smokers, for example, give up after four days of being short-tempered and irritable and return to their habit? Only the minority see such resolutions as serious and endeavour to follow through to the best of their ability, as they see clear benefits.
As an expat in Asia, do you feel you need to do something different? Is your future secure and are you comfortable that you have made adequate arrangements? There are a number of important factors that contribute to a successful life. Each is important and collectively they will combine to create an archway of protection for you. This is true no matter how young or old you are or how precarious your situation appears to be.
Let's take some one-off examples that demonstrate specific points:
Do you have any pension provision? Perhaps you have a scheme or two from previous employers? Have you reviewed these and assured yourself that they are adequate? Have you created any kind of additional plan to ensure that you have provided beyond the initial projected requirement?
Expats are often shocked at the amounts they ought to be providing for themselves. Inflation is the enemy. It can be a stealth attacker, creeping up on us all without warning. For several years we have been in a period of relative calm from inflation, although it is still there and still very dangerous and real (see "Net Worth", Feb 6, 2011, "How will inflation affect you?").
The antidote to this is compounding growth. If you are saving regularly, you are building inflation protection and this will certainly help (see "Net Worth", Feb 12, 2012, "Creating personal wealth"). The positive effects of dollar-cost averaging are remarkable the longer you stick with it.
If you were to die suddenly, would you leave any liabilities behind for which your heirs would need to take responsibility? A mortgage or a loan are prime examples. If these were unprotected, your heirs could face some very difficult times ahead.
A spouse and children will also need ongoing financial support after your passing and this could be secured by life insurance. You would be amazed at how reasonable the cost can be.
Even worse, if you were disabled for life and unable to work again, how would you survive? This would create an even heavier drain on your resources. You can also insure against future loss of earnings for a reasonable cost (see "Net Worth", Nov 11, 2012, "The power to make a living is priceless").
Do you have medical insurance for yourself and your loved ones? While many do not believe they will need expensive treatment there is always that possibility. By then it is often too late and medical treatment can be beyond you financially (see "Net Worth", Sept 16, 2012, "The dangers of ignoring medical insurance").
Are you aware of the global rules about probate and wills? Your executors are required to obtain a grant of probate from each jurisdiction in which you have assets. This process can keep beneficiaries from accessing resources they require to cover their living costs. A structure where wills are planned and created will assist greatly (see "Net Worth", Aug 26,2012, "Domicile residence and probate").
Where assets are more substantial, you would be wise to investigate the use of trusts as they offer you far more flexibility. You and your adviser can create a succession plan that accounts for several different circumstances. These do not necessarily revolve around your death. They may take account of preferential beneficiaries, such as those with disabilities. Assets settled into a trust are not subject to a will or to probate because the trustees legally own the assets (see "Net Worth", Aug 5, 2012, "Wealth protection you can trust"). Trusts also allow you to plan beyond generations yet to be created, so you may provide for grandchildren and great-grandchildren now.
Most expats see this subject as a low priority until they realise just how exposed they can be. This is not just about your liability to tax on income in Thailand. It can relate to capital gains tax, inheritance tax, liability on pension income and the possible complexities of double taxation agreements between places where you have assets and from where you generate income.
Tax is a complex issue and usually needs highly specialised evaluation and advice. However, starting with an overall view and some strategic planning will often allow you to get the feel for what is required. Then you can take action with your professional adviser to make at least the first moves toward future planning.
Many expats unexpectedly face difficulties that they had never envisaged. One example is the calculation of pension drawdown from a QROPS (qualifying recognised overseas pension scheme). In the Nov 23, 2011 "Net Worth" column, "A looming pension nightmare", we pointed out that quantitative easing would have a devastating effect on QROPS drawdown calculations for some with UK pensions. This is because gilt rates have declined and the amount you may withdraw from your QROPS is based on current gilt rates, your age and the UK Government Actuary's Department tables for these calculations.
In addition, a new QROPS regulation in 2012 reduced the drawdown from 120% to 100% of the department's calculations. These combined factors have had a devastating effect on many members when they come up to a three-year recalculation of drawdown.
I have seen several examples of QROPS pension income being reduced by as much as 40% from current levels. While rules are implemented with an overall view in mind, how can the UK government expect someone to continue planning his life based on pension income declining by such drastic amounts?
If you do not have a resolution for 2013, which you are serious about, I urge you to seek the counsel of a professional adviser to review all aspects of your life. Regardless of whether you are a new expat or an old hand, it is inevitable that there are some aspects you are unaware of. These can be identified and dealt with to ensure you are on course to deal with any eventuality that may arise.
Andrew Wood has been an expat in Asia for 33 years and is executive director of PFS International. His articles, which cover the complete A-Z of financial planning, are available through the PFS library to readers on request. Questions to the author can be directed to PFS International on 02-653-1971 or emailed to email@example.com.
About the author
- Writer: Andrew Wood