By making the lifestyle choice to retire in Portugal, you’ll want to make the most of what the country has to offer, hopefully well into the future.
This may be longer than you expect. Thanks to medical advances over the years and a better quality of life, people are generally living longer than the previous generation.
Living to a ripe old age does sound rather appealing, provided we are healthy enough. Much more time to watch our grandchildren grow up and to enjoy a well-earned retirement. There are, however, implications at both personal and government levels, with the key issue being: can we afford it?
The longer we live, the longer we need our savings to last in order to live as comfortably as we are used to. For peace of mind, assess whether your resources are on track to last throughout your lifetime. Here are the key considerations.
Income and inflation
Starting with the big topic of the moment – inflation. The levels we have seen this year are certainly an eye-opener on how it can impact our monthly living costs, but even low levels, compounded year after year, will reduce how far a fixed income will stretch in the future.
Say, for example, you spend €5,000 a month. Assuming an inflation rate of 3% a year, in 10 years’ time you could need €6,720 a month to maintain the same spending, and €9,030 in 20 years. So, your capital and income would need to grow by the same amount to maintain the same standard of living.
Making your savings and investments last
Many retirees favour low-risk, ‘safer’ investments like bank deposits in their later years. But with a potential 30 years or more to fund in retirement, this can be a risky strategy.
British expatriates also need to factor in exchange rate risk. If you receive income in pounds while spending euros in your daily life, depending on currency movements you may find your money does not go as far, even without the inflation factor.
By following some key investment principles and taking specialist guidance, you can invest capital to give it the opportunity to keep pace with inflation, while keeping risk to a comfortable level.
Start by establishing your risk profile, then carefully build a well-diversified investment portfolio to suit your circumstances, needs and objectives. Look for investment arrangements which provide some currency flexibility to try and avoid the exchange rate risk.
A taxing problem – not just for governments
Rising life expectancy is also expensive for governments. The higher the proportion of older people in a population, the greater the costs of services like state pensions and healthcare – and the lower the number of taxpayers to fund it. The solution usually lies in pension or healthcare reforms and tax increases to finance these escalating expenses.
Higher taxation can be a considerable threat to your financial security in retirement – just like inflation, it erodes your income. This is where personalised tax planning is vital to make use of available opportunities to ensure you do not pay more tax than necessary.
With many of these arrangements you can combine your tax and investment planning in one exercise, allowing you to tackle the twin threats of tax and inflation at the same time.
Getting the most from your pensions
Pensions are often the key to financial security in retirement, so take care to do what is right for you. Consider all your options, carefully weighing the pros and cons. Look at your income needs, investment options and risk, currency risk, what happens to the balance when you die, and the tax implications.
There may be ways for expatriates to make pension funds go further, but before making any decisions, take regulated advice to avoid pension scams and establish the best approach for your particular objectives and circumstances. You may be best advised to leave your pension where it is.
Leaving wealth behind
If you want to leave a lasting legacy for your family, you have to make sure you do not spend it all in your own lifetime but without compromising your quality of life today. A strategic financial planning approach – that considers estate planning alongside investing and tax planning – can prove invaluable here.
Estate planning is complex – more so for expatriates who have to consider the inheritance regime of two countries and how they interact, and navigate foreign inheritance taxes and succession laws. Portugal, for example, impose forced heirship. If your family includes children from previous marriages, be particularly careful to ensure everyone benefits in accordance with your wishes.
Whatever your stage of life, good financial planning can help you afford the lifestyle you want, for as long as you need, so you can focus on enjoying your retirement in Portugal.
This article should not be construed as providing any personalised investment or taxation advice. You should take advice for your circumstances.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com
Dan Henderson is a Partner of Blevins Franks in Portugal. A highly experienced financial adviser, he holds the Diploma in Financial Planning and advanced qualifications in pensions and investment planning from the Chartered Insurance Institute (CII). | www.blevinsfranks.com