Job Discussion Forums

[aridion]

I am about to start my international teaching career. I am thinking about starting some kind of pension fund for the future. Have you guys any experience of doing this? Do you know any good off shore companies that offer these services.

I am currently in the UK, from Ireland.

[tttompatz]

[Matt_22]

It's true for American citizens, and it probably is for UK citizens as well, that offshore accounts have significant drawbacks. Domestic brokerages offer lower fees and present far fewer tax-related problems down the road than those located overseas.

From what I have gathered over the last few years, the best strategy for overseas ESL teacher would be to open up a taxable domestic account, and plug away as many extra dollars as possible.

If an account is sufficiently diversified, and becomes increasingly conservative (bond-heavy) over time, it gives an ESL teacher an excellent shot at a comfortable retirement. Use of cost-of-living-adjusted (COLA) annuities can turn a final nest egg into a steady stream of income that is guaranteed to last for the rest of one's life.

[aridion]

[aridion]

[Matt_22]

[Teacher in Rome]

For all sorts of reasons, the technical aspects of which make my eyes glaze over, pension funds - of all sorts - would seem completely inadequate in generating a decent pension:

http://www.guardian.co.uk/money/2012/may/25/20000-pension-quarter-salary-retirement

In fact, if you're in your mid-20's, the advice might well be (from the article) to:

- not trust the stock market to behave long-term in the way that will benefit you
- buy property to sell or rent out to generate an income

If you are young (and not mid to late 40s like myself), I'd recommend any of the alternatives:

- work in KSA and sock it away (but not in a pension fund)
- invest in areas with growth (BRIC countries perhaps, but not Europe)
- set up a business that will keep you going into your retirement (preferably one with passive income streams - anything online should fit this)
- have some fun on the stock market, but only as much as you're prepared to lose and only for "research" or learning purposes

Pensions and what to do about them is an area that crops up relatively frequently on Dave's. It's a very good question to ask, as people generally don't think about it until it's too late. (ESL teachers are no different than the majority of the non-ESL population, it would seem.)

If you're in Europe, you're in a relatively good position in that whatever contributions you make Europe-wide count. "Relatively good" because there's no cast-iron guarantee you'll ever see what you put in.

But if you've gadded about (like I have) and not been particularly serious about your long-term future, you have rather more limited options. I'd love to be the sort of person that can make head and tail of pension plans, funds, and stock market ins and outs, but I'm just not that interested. Of course I have made a ton of errors along the way, and these are (in no particular order) probably worth avoiding:

- "investing" in Italian real estate (for all sorts of reasons. Trust me: only buy in a city or on the coast)
- "investing" in Italian bonds (managed funds, my a**)
- not investing in UK (London) property when I had the chance
- not experimenting sooner and failing more with online ventures
- not marrying a rich man (only sort of joking)

One of the interesting points about the article I linked to is the failure of governments, companies and individuals alike to come up with a plan that will guarantee a decent pension. For this reason, I think we will all have to work it out ourselves. The great thing you have going for yourself is a) age; and b) opportunity to work in a well-paying country - multiple times. You have the skills to get work in places that will pay far better than the UK or Ireland, and go where the money is. That is a great start to your career - and your pension prospects. Just stay focused and aware (not like the vast majority of populations anywhere - and especially not like middle-aged fools like me!) and you'll be fine.

[Perilla]

An excellent summary by Teacher in Rome.

My two pennies worth ... I've just passed the 50 mark, and spent about 10 years in the TEFL business. This of course is anecdotal, but the only people of my acquaintance (inside and outside TEFL) who have accumulated a "reasonable" amount of wealth and security (I don't know anybody who is genuinely "rich") did so through property - not by saving cash.

Unfortunately, in my own case (as with TiR above) I never bought into the UK property market when I could have, and consequently don't own a property that has risen hugely in value. I have a close friend who bought a small terraced house in London for 35,000 pounds in the 70s just after he graduated. Now it's worth over 400,000 and virtually alone is sufficient to provide for his retirement - certainly on top of his other savings.

A word of caution on the property concept however - it doesn't always work out as above. I bought into Spanish property in 2008 (yes, I know, the worst possible time - easy with hindsight) and the market has gone steadily backwards. In the long run it may work out OK. We shall see.

I couldn't agree with TiR more on stocks and shares-related savings. If you really know what you're doing (and there are a few regulars on this forum who will tell you it's all perfectly straightforward and how nicely they've done) then it's certainly possible to make money out of the stock market. But, I haven't made a penny in my dabblings over the last 10 years. Overall I haven't lost, or haven't lost much, but I would have done just as well if the money had been stashed under my bed.

Neither do I know anyone who has made much out of the stock market in the last decade, probably because of its huge ups and downs (2001-2, 2008-9, and again now, maybe). Doubtless some have made very nice profits by buying and selling at just the right time, and/or choosing the right stocks despite market fluctuations, but IMO it's as much down to luck as judgement.

Another argument is that if you buy shares regularly and hang onto them until retirement you're bound to gain eventually, but after what I've seen over the last 12 or so years I am not convinced. But having said that, yes, I am paying monthly (since 2006) into a stocks-related savings fund - the idea being that it will provide me with a lump sum on retirement - if I ever retire! As yet it's about breaking even, but heading south (down) again as we speak.

If I were to give financial advice to someone starting out I'd say get into property as soon as feasibly possible, but try and avoid doing what I did and buying at the top of a bubble! And don't worry (as I did) about owning property preventing you from travelling - you can always rent it out.

Aside from that, make sure you get into the more profitable end of TEFL - the international schools, the government programmes (mostly Asia) and the better paying unis (mostly Asia and the ME), and try not to spend all your money!

[PC Parrot]

Many people that I know who, like me, misssed the big property boom in the UK managed to catch the boom of the country they were living in ... of course, it was generally only those people who were married to locals that were willing to invest in property, but they all did handsomely .. as did we ..

We are taking the Gulf route to pensions .. and I'm happy to say we are just about to finish our tenth year of disciplined graft and saving ...

The fruits of our labours are beginning to show ..

[Matt_22]

[HLJHLJ]

As has been discussed many times before on here, we are banking on property for our pensions. We are not, and never have been, interested in the capital gains, but the long term rental income. We buy in the area we grew up in, we know the market there well. We buy 3 beds, because they rent the best and attract families who tend to stay long term. Apartments have bigger rental yields but tend to have more transient tenants, which costs more in the long run. They are managed by a professional letting agent, which cuts into our income now, but should we return to the UK in the future, we can take the role over ourselves and boost our income.

When we bought the first property we also put a small contingency fund into a stock market savings vehicle. There have been many years when that has lost money, and overall it has increased by far less than inflation. If things got really bad, we could theoretically lose the whole lot. Whatever happens to inflation we still have a property worth whatever the going rate is for a 3 bed house in that area, the income from it will always be worth whatever the going rate is for rent on a 3-bed property. The exact value is largely irrelevant to us.

Our approach doesn't maximize our income or our future investment, but it's very safe. We could dramatically increase our investment by buying numerous properties on buy to let mortgages and using the rental income to pay them off. But I've seen far too many people get burnt that way. Interest rates rise, rental incomes drop, a long void in a letting period and suddenly you can't meet the monthly repayments and it can all go belly up very very quickly.

We are in it for the long haul, and at this stage in our lives we will happily settle for a smaller but more reliable income stream over the long term. As long as you don't get greedy and over-stretch yourself there's no reason why you can't make a good long term plan from it.

[Perilla]

[Matt_22]

My point is not to diminish the value of investing in something. Many ESL teachers live paycheck to paycheck. My point is that far too many people have written off stocks as being "too risky", while jumping into a housing market they often don't understand. Used to be the cliche five years ago in the states for a bunch of HGTV-educated people to jump head first into real estate. A bunch of them lost pretty much everything.

There are so many hidden costs in purchasing income property that no one likes to discuss: property taxes, maintenance, tenant problems, insurance, meeting municipal codes and housing regulations, and keeping the apartments rented. Rental markets can fluctuate just as wildly as stock markets do, and it's a lot easier to handle those unforeseen circumstances when you are "there" versus located 5,000 miles away.

It just seems like a far more suitable path to make autodrafts into a brokerage account of low-fee index funds and bond-market funds, especially for a guy in KSA who can likely stash away $1,500 per month. If you live in the neighborhood you're buying in, I don't think it's a bad idea at all. I would still try to put 5k/year or so into a stock/bond account, just to diversify things long term.

[HLJHLJ]

Yes there are costs, but then there are hidden costs with stock investments as well. The difference is, if you do your homework properly, property doesn't have to be risky. Actually, depending on your credit:capital ratio you can make it as risky or non-risky as you want.

Whereas you can do all the research you want with stocks and regardless of how good a buy it was at the beginning, there is still a risk that a massive crash will devalue the lot, or even leave you with nothing.

Incidentally, I worked in pensions a long time ago. The people I know who still work there only invest in share based pensions up to the point of the maximum UK tax break. Beyond that they use other investments. As I would get minimal UK tax breaks, and don't stay in one place long enough to take advantage of anything local, I don't see any advantages, and a lot of disadvantages, to switching to the stock market.

Of course, the markets you have available to you, whether property or stock market, vary depending on nationality, etc. The situation could be very different for people looking to build a nest-egg in USA for example.

[Matt_22]