PHUKET: It’s natural to experience culture shock as an expat, but the real shock comes when expats consider just how complicated proper investment or financial planning becomes after they expatriate from their home countries.
Here are some of the key areas expats will need to have a plan for and likely consult with knowledgeable experts about.
EXCHANGE RATE AND REMITTANCE
Expats whose income is largely fixed and denominated in a currency different from that used in the country in which they are living need to have a plan for dealing with exchange rate fluctuations as well as transactional costs of having their money remitted to them.
In the worst case scenario, where the exchange rate makes a big and sustained movement not in the expats’ favor, they may have to plan on making major cutbacks in living expenses or even return home.
For most expats in Phuket, their home country has low inflation and low interest rates.
However, emerging markets such as Thailand tend to have much higher rates of inflation that their incomes or investment returns will need to keep pace with.
Expats must keep this in mind while considering the risk of their investments, as high returns can often mean higher risk of losses.
Expats need to tie up cash in a much bigger emergency cash fund than most would otherwise need back home.
This emergency cash fund should be large enough to cover things such as medical emergencies, where cash may be needed to pay upfront or to cover repatriation to the home country should the expat need to return home.
Expats also need to keep in mind and plan for the likelihood that various social welfare entitlements, such as unemployment compensation or disability, from the home country probably won’t cover them while living abroad.
They may even need to re-establish residency back home in order to qualify.
Expats from countries that enforce worldwide taxation, such as the United States, or require their nationals to maintain a residence in the home country, could face double taxation – unless there is a tax treaty in place.
Such expats need to consult a tax expert to find out which taxes they and their investments could be liable for, as investing in various offshore investments marketed to expats as a way to lower taxes may actually not make sense.
Expats with children will need to have a plan for how to pay for their children’s education costs, including international school fees and possibly even for university.
Even if the employer is currently footing the bill for most international school fees, such parents better have a backup plan in the event they don’t always have an employer willing to do so in the future.
The older expats get, the harder and more expensive it is for them to get good expat health insurance coverage, and the home country’s retirement health care scheme will likely not cover them while abroad.
They may need to plan on returning home after a certain age or if their health deteriorates to a certain level.
Expats working abroad might be paying into their adopted country’s government sponsored retirement program and still be eligible for a pension back home if there is an appropriate tax treaty.
If not, they will need to plan on saving and investing a considerable amount of extra money for retirement.
No one likes to talk about the inevitable, but planning for the inevitable becomes much more complicated if assets or family members need to be provided for. This includes those in both the expat’s adopted country and back in their home country.
If the expat’s financial and family situation is complicated, he or she had better find an expert
lawyer in estate planning back home and in the country where he or she is currently living.
At the very least, they should make sure they have a written will and appropriate power of attorney documents kept in a safe place.
Don Freeman is president of Freeman Capital Management, an independent US-registered investment advisor. He has over 20 years’ experience and provides personal financial planning and wealth management to expatriates living in Phuket, and specializes in UK and US pension transfers. Call 089-970-5795 or email: email@example.com.
— Don Freeman