We look at an expat family who have been posted abroad and is likely to be staying for a number of years. They wanted to make that sure that the family would ‘supercharge’ their finances whilst they were in a low-tax environment. They will eventually return to their home country and would need to make this as painless as possible.
The couple in the mid 30’s with two young children. One of the spouses’ works whilst the other is looking to work as there full time help at home. The children are in pre-school. They have a property in the UK that they had rented out, and this was paying the mortgage that existed on it. They had to get permission from the lender to do this and are paying an extra fee per year.
They wanted to know about saving whilst they were in a low tax regime so that they can get the supercharge on their finances compared to what they could do at home. Another goal of their expat tenure is to have the mortgage paid down and maybe adding another property that they can rent for an income.
After running the cash flow modelling using specialist financial planning software we looked at what they could save every month without impacting their spending. We then added in the future school and university fees and their desire to pay off the mortgage on their house and the 'what if' option of buying another rental property. The modelling also showed what their current retirement income would look like today.
We helped them open an additional bank account for savings away from their current or spending account. This segregated away cash for any potential emergency.
We calculated the 'human capital' of the working spouse and then estimated the amount of insurance to cover the family should there be an early death or one of the parents suffering a critical illness. This was put into a trust to keep to it out of their estate and not susceptible to UK inheritance tax.
The cash flow modelling, projected that by paying an extra every month off their mortgage can save them two and half years’ worth of interest and their mortgage would finish early.
The disposable money (after making sure there is three months’ worth expenses in the joint bank account) is sent into a Singapore based investment platform. Invested 100% into low-cost index equity funds. The platform has no penalty or lock-in period in the expectation of the future being uncertain because of their expat status. When and if there is a need to return to their home country they can start the repatriation plan by using the accumulated assets to fund local pension and tax-wrappers.
We also helped them to make voluntary contributions to ensure they were on track to receive their full state pension when they retire. The cash flow modelling is re-run every year and adjustments are made to their circumstances i.e. increases in income and expenditure. The actual return of the assets (portfolio and property) in the local currency and the currency they think in and will eventually spent their retirement income in are adjusted as well. The assumptions such as inflation and future returns are also forecasted. The ‘what if’ strategies can then be based on these facts and changed if they need to be.
The outcome is that the couple are aware of what they future finances look like, understand if there is a market crash and how this will impact them and they have made provision of the future expenses. They can now relax and enjoy their expat life without too much worry.