Property Guides and Information for the Costa del Sol, Spain
Click on any of the categories in the right hand column to research a topic you are interested in NOW and the guides will appear as titles below.Retiring to Spain? Get your Financial Planning Right
Blevins Franks
Are you planning to buy a house in Spain or have recently retired here, you’ll be looking forward to starting your new life and to putting those savings you’ve worked so hard for to good use.
keywords: retirement, retire, retiring, savings, pensions, guide, spain, finance, financial, planning, expat
Without a crystal ball we cannot know exactly how many years we’ll have to enjoy our retirement, but if you retire at the normal age statistics show that people can expect to live 20 years in retirement. In order to enjoy every single one of these years, you’ll need a plan to ensure you don’t outlive your accumulated income. Without a salary coming in, your pension and savings will need to enable you to live comfortably for the rest of your life.
Most people still need an estimated financial budget during retirement. Estimate your monthly expenses based on the lifestyle you plan to live. The rule of thumb for people wishing to continue living their pre-retirement lifestyle is to estimate at 80% of their current expenses. This is based on the fact that you’ll no longer have work related expenses such as commuting, lunches, dry cleaning, work clothes etc.
However, many people actually spend more money in retirement than they do whilst working, for example, if they travel, play golf etc. Moving to Spain also means different expenses, so it is necessary to study Spanish cost of living and work out a new budget. Allow for extra “hidden costs” associated with settling in and don’t forget to include medical insurance and a reserve for emergencies. Also, although on average a 65-year old retiree will live another 20 years, others live 30 years longer so take this possibility into account as well.
If you calculate that your money may not support the lifestyle you have chosen, you will need to make adjustments.
Whilst planning for retirement your strategy is likely to have been focused on long-term wealth accumulation. Once you retire some goals will change. You’ll be withdrawing money from your retirement account, rather than just accumulating, so you may need to move some of your wealth into investments designed for short-term needs.
Having said this, many retirees make the mistake of abandoning their long-term strategy completely. Bearing in mind that you need to plan for 20+ years ahead, a long-term approach is still very relevant. To get the balance right, ask your financial adviser to examine your needs and current investment strategy and determine the best way forward for you.
Ask yourself the question “If I could have all the money I have previously invested and now hold in a variety of arrangements… would I still invest in the same things?” If the answer is “no”, and it’s likely to be, seek advice on making the necessary changes to your new investment, pension and tax environment.
Savings & Investments
Retires often become risk averse. Without a steady employment income they worry that their nest egg could diminish unexpectedly. As a result they only seek very low risk investments, such as leaving it as cash in a savings deposit account. Although this attitude is understandable, it’s not always wise. Your goal during your retirement is to maintain your financial independence for your entire life time. This means inflation is your enemy and your investment strategy should be designed to at least outpace inflation, if not continue to build your nest egg. Inflation can easily erode the spending power of your capital, even if you are earning interest. Another issue for expatriates to consider is the rate of exchange.
If you keep your savings in a Sterling account and convert to Euros when you need them, the value of your capital will be affected by exchange rate movements. This could work in your favour, but it’s also likely to work against you and you won’t want to rely on luck. Finally, interest and tax rates can change. Interest rates can fall dramatically so you should not rely on receiving a certain interest rate to earn enough money for retirement. Likewise, the tax rate you pay on the interest you earn could also increase, eroding your income. We recommend holding a variety of investments in your portfolio.
You should always keep a certain amount of cash, but you could also hold a well-diversified equity portfolio and/or a bond fund. Bond funds also provide a regular income, which many retirees find useful. Another investment possibility is a guaranteed bond. As long as it has a 100% capital guarantee you won’t lose any of your money and stand to earn more than you would on deposit. However you would need to tie your money up for 5 years.
Everyone has different needs and circumstances, so ask your financial adviser for advice on the right investment mix for you. Pensions Nowadays there are quite a few choices on how to receive your pension. Depending on the type of pension and whether you have started drawing income, there may be ways to improve your pension fund and earn more from it. A pensions expert will be able to point you in the right direction.
Finally, you paid income tax when you earned your money in the first place, so paying tax again on interest and dividends can be very frustrating. One way to increase your income in retirement is through careful tax planning. Don’t even think about tax evasion – it’s illegal - but there are legitimate vehicles you can use to defer, reduce or avoid tax completely. The less tax you pay, the more you have to spend in retirement. Retirement should be the time when you take it easy and reward yourself for all those years of hard work. You shouldn’t have to worry about money all the way through. The earlier you get your financial planning in order, the better. Then you can sit back and enjoy yourself!
The above are summaries of complex issues and usually specific advice should be sought. Blevins Franks is one of the largest firms of wealth management specialists in Europe and have been advising expatriates on all aspects of successful financial planning – including wealth management, tax planning, estate planning, European mortgages and pensions analysis - for over 30 years. Our 11 Spanish offices, located in the main expatriate areas, are backed up by Blevins Frank's unique UK based Tax Advisory Service, ensuring continuity of advice both before and after your move.
international@blevinsfranks.com
February 23, 2006 | Category: Pensions, Property and Retiring to the Costa del Sol