One of the biggest threats to a well thought out expat retirement plan is losing your job before you are ready to retire.
You have it all planned out. You are hitting your peak earning years. The costs associated with raising children have started to decline. Now is the time to start socking away some serious funds to boost your retirement… and bosh!!!! Out of the blue, you are staring at a P45.
Your employer may have imagined that they can employ somebody younger who has a more up-to-date skill set.
Alternatively, as they look to cut costs, they may look to replace you with a local employee who doesn’t require the additional bells and whistles associated with employing an expat – accommodation for your family, international school fees, regular flights home etc.
A study conducted in December 2018 by researchers at ProPublica and the Urban Institute found that more than 50% of workers experience “an employer-related involuntary job separation” after age 50.
Getting back on the merry-go-round can be difficult
Then, once you have been let go, getting back into employment can be more difficult than you had imagined.
It is a sad fact that many employers discriminate against those over age 50 – ageism is a thing.
For expats, matters are further complicated when it comes to landing a new role.
- We may have grown too big for similar roles in our home country.
- Our network of contacts to call on has withered as a result of our years spent overseas.
- There is greater perceived risk in employing someone who has been “out of the country” for some time.
- If we have settled in a foreign country and want to find work there, we can be hampered by the fact that we do not speak the local language well enough (we were always too busy to get round to learning it).
- For those looking to stay on, there is also the fact that many multinational companies looking for expatriates advertise at home first as they don’t seem to consider there may be foreign experts on the spot who are employable.
As a result, expats who are laid off later in life face an extended period out of the workforce and, if they are able to find a new job, it may be at a much lower income level (I have friends who in a previous life held high flying executive careers and who are now teaching English as a foreign language).
The repercussions for those who are being let go from a job late in their career can be disastrous financially.
Dipping into one’s savings five to ten years earlier than planned, instead of continuing to save and invest, can lead to very challenging years ahead.
The best approach for this type of undoubtedly frustrating situation is to be proactive. Procrastination can further exacerbate the negative impact on your finances for years to come.
Below is a list of planning items to consider in the unfortunate event that you are laid off late in your career.
Check your contract
After the initial shock of being “axed” has worn off, the first thing to do is check your contract. Much depends on whether you are a local or an international employee.
Although it may seem very obvious to do so, many expatriates in the initial rush of euphoria that accompanies an overseas posting, do not check their contracts carefully enough.
It is essential to pay particular attention to an employer’s obligations at the end of the assignment relating to matters such as relocation responsibilities, repatriation expenses and favourable termination benefits if there is no other job available elsewhere.
Your rights depend on where you have actually been working, whether that country is a signatory to various international conventions as well as the law governing your contract.
Review your savings and pensions
This is a great time to take stock of what you have accumulated so far.
Schedule a time to talk with your financial advisor to understand the income that you can expect from your accumulated investments should you need to start drawing from them early.
Discuss any financial pay-off that you have received as part of your redundancy and how this might affect your financial plan.
Also, review your pensions. What are the implications of starting to take income from any old employer pension schemes (assuming you are already over age 55)? Are there penalties for doing so at your current age?
Can you take any Pension Commencement Lump Sums? [Caveat – if you are not resident in the UK, you should always check the implications with a local tax adviser before doing so.]
It is likely that you will not be able to receive any State Pension yet. However you should factor that into your calculations. You can find out more about UK State Pension for expats in our guide.
By utilising cash flow modelling tools, your adviser should be able to clearly show you the impact of the various scenarios that we will look at in this post.
You will then be able to reassess your investment asset allocation and determine if you need to make lifestyle changes in the event that you are not able to get back to the same income level.
Be aware of the tax implications if you decide to return to the UK
If you decide to return to the UK, such a move has to be carefully planned to avoid adding to your woes by running foul of the Inland Revenue; there are a number of things that can catch you out.
I would always recommend that you talk to a UK qualified financial adviser and a UK tax adviser beforehand.
Adjust your budget/spending
If you were prudent while you were working, you probably have a six-month emergency fund set aside for situations like this.
That’s great, but that six months will fly by.
You can make that emergency fund last longer by reassessing your spending.
There are certain expenses, like mortgage payments, rent, utility bills, and groceries, that obviously can’t be reduced.
However, cancelling your next vacation, refraining from dining out, and postponing the kitchen renovation are all actions that can be taken until your financial future is more certain.
Register for unemployment benefits
When dealing with the shock of being laid off from a long-time employer, one of the first things to consider is claiming unemployment benefits.
This is more complicated for expats. If you decide to return to the UK, you will have to wait till you have been resident for 3 months before you can receive jobseekers allowance.
If you decide to stay overseas, you will have to investigate any eligibility for unemployment benefit in the country in which you are resident.
For reasons of pride, this step may be overlooked by high earners. Don’t let that happen to you.
While unemployment checks may be quite modest compared to your previous earnings, they will at least serve as an income stream to help you cover some basic expenses.
There is no reason not to claim the money to which you are entitled.
Evaluate your insurance coverage
As well as losing your income, being made unemployed will mean losing any employer-sponsored health and life insurance plans.
While the priority will likely be to reduce your financial commitments (see earlier point) it may be necessary to replace these insurance plans.
This is especially the case if you still have children who are financially dependent on you and/or you live in a country that does not have a state-sponsored health system that you and your family are eligible to use.
One option would be to approach the insurance company that provided the cover through your ex-employer and ask if you can maintain the plan yourself.
If this is too expensive or simply not an option, then you will need to look at setting up such insurance independently.
Starting to apply for new jobs is an obvious decision.
However, repositioning your skillset is not always top of mind. One of the reasons older employees may lose their jobs is due to a skillset that is perceived as antiquated.
That being said, after spending several decades in a particular field, you are bound to pick up many things that the 25-year-old rookie who just replaced you does not yet possess.
This includes experience, contacts, industry knowledge, secrets of the trade, and more.
You can leverage these insights (as well as show that you are not a tech-dinosaur) by sharing your knowledge via your own blog or a platform like LinkedIn.
Start a consulting business
The knowledge that you have amassed during years of experience in your field can serve as a valuable resource to many.
One of the smartest moves I have seen from laid-off executives has been to set up their own consulting firm.
In doing so, they stayed active in their field, prevented gaps in their resume, maintained an income stream (even if less predictable), and continued to network with like-minded professionals.
While the transition from a high earning C-suite employee to an entrepreneurial consultant may be difficult, the benefits sure beat spending years unsuccessfully searching for work.
Work longer than planned, but at a less stressful job
Changing careers may be a good opportunity to continue earning an income while reducing stress and improving your lifestyle.
For example, if you worked as a regional CEO at a large pharma firm, then switching to a not for profit organization will surely lower your income and you may need to work longer to reach your financial goals.
However, you’d also be trading regularly spending 70+ hours a week in the office for a significantly improved work-life balance.
This strategy may have been unthinkable at your old job, but the ability to think outside the box is essential to not derailing your financial goals.
Accelerate your retirement plans
Depending on the results of reviewing your existing savings, investments and pension plans, retiring earlier than intended may be an option if you have sufficient funds to do so.
If this is not the case but downsizing or relocating were on your list of things to do in retirement, accelerating those plans may provide the cost savings you need in order to comfortably retire today.
Add in the potential savings from lower taxes, not having to commute to work, no longer needing to buy office clothes etc and retirement may become even more realistic.
In any case, meeting a financial adviser to run the numbers and have a conversation about the impact of such a decision is certainly worthwhile. You may even leave the meeting feeling pleasantly surprised.
While losing your job later in life is difficult, it can also serve as a wakeup call to get your finances in order before entering your official retirement.
Getting a handle on your budget, organising your finances, and evaluating your insurance coverages are all excellent ways to prepare for life after work.
Furthermore, adjustments to your lifestyle by working as a consultant or in a different career can be great for your mental health.
Although many people look forward to leaving the workforce, choosing to continue working, while gradually transitioning out of corporate life to a less stressful job has benefits too.
It helps retirees keep active, have daily structure and stay mentally sharp, while also providing some additional income in order to delay living strictly off their savings.
As people continue to live longer, there is no doubt that the trend of leaving the workforce prematurely will continue.
Having a strategy in place for that possibility is the best way to preserve your finances as well as the retirement you envisioned.
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▪️Ross has been a financial adviser for the past 26 years.
▪️He specialises in working with British expats over age 50 who are looking to optimise their finances for retirement.
▪️He is qualified as a financial adviser both in the UK, as a Chartered Financial Planner®, and in the EU, as a European Financial Planner®.
▪️Ross has been an expat himself for 22 years and currently lives in Warsaw, Poland with his wife and 2 children.