Bryan Bann, Regional Manager - Europe at Skybound Wealth Management reveals his 10 Essential Financial Tips for Expats in Switzerland
It’s probably fair to say everyone would like to be part of the millionaire club in retirement. After all, if you’ve worked hard for several decades, you’ll want a decent reward at the end of it all. No matter how hard you work though, nor how successful you are in your career or business, if you don’t save and invest enough you won’t get there. Fortunately, however, reaching the magic million mark isn’t as difficult as you might think.
Making sure you have enough financially to live a comfortable retirement is one of the most important things you can do. Yet because retirement is far off in the future for many people, it’s often neglected. It’s not until later in life that many people start to give it serious thought. By this time though, it can be a struggle to reach your desired financial goals. It’s not just about how much you save and invest. How long you save and invest for also has a huge impact on whether you live the retirement you dream of, or whether you have to cut back and make sacrifices.
Saving successfully for retirement should be a marathon rather than a sprint. The earlier you start the easier it’ll be to hit millionaire status. That shouldn’t, however, be at the expense of paying off any high-interest debt, taking out appropriate insurance or building up an emergency cash reserve. Once you’ve got all the bases covered though, it’s time to get going. The table below shows what you’d need to save each month to retire with £1 million, assuming a range of average annual investment growth rates.
As you can see, the earlier you start the less you have to save each month. With an adventurous investment approach, someone in their thirties could put away less than a thousand a month and reach millionaire status by the time they retire. That’s not just because you’d be putting money away on more occasions, but because you’d benefit from investment growth for longer.
If you save and invest for only 10 years, however, the monthly contributions are not just double what you’d need over 20 years or triple the amount required over 30 – it’s far more than that. With a 5% growth rate you’d need to put away 2.6 times as much each month compared to over 20 years. With an 8% growth rate it’s over 3 times as much. The difference between 10 and 30 years is even more stark. With a 5% growth rate you’d need to save over 5 times as much each month over 10 years compared to 30. With an 8% growth rate you’d need a whopping 8 times as much.
The conclusion is clear. Start saving and investing as early as possible. Start early enough and reaching a million by retirement could be easily achievable. The longer you wait though, the harder it becomes.
Just as important as how long you invest for is how disciplined you are at putting money away each month. The table above assumes you don’t skip any months. You might think missing a few contributions here or there won’t make too much difference. Due to the investment growth you’ll miss out on, however, you’ll have to make up any shortfalls with higher amounts in the future. So it’s really important to have the discipline and financial resources to keep making your monthly contributions.
Now of course life doesn’t follow a smooth path and go exactly to plan – just like markets. There will be twists and turns and occasionally things can go really wrong. Life can throw up redundancy, divorce, litigation, disability and death. These are all unfortunate events, but also very possible and can have very serious consequences. Ensuring you can keep making your monthly retirement savings when life throws you a curve ball is something you’ll need to plan for. That could be cash reserve, for example, so you can keep saving if you lose your job. Or perhaps insurance if you became unable to work through disability.
We’ll admit this isn’t the catchiest-sounding title ever, but it’s something everyone aiming to retire a millionaire should consider. Inflation erodes the buying power of your money. So a million by the time you retire won’t be worth the same as a million today. It’ll be worth less. Potentially much less depending on how far away from retirement you are.
This next table shows how much you’ll need in the future (rounded to the nearest £1,000) to have the same purchasing power as £1 million today, assuming different long-term rates of inflation.
Now the tables have turned. The further away from retirement you are, the more you’ll have to save and invest for it to be worth £1 million in today’s terms. Just like market performance, unfortunately no-one knows what the actual long-term rate of inflation will be. Until the recent inflation spikes, inflation was around 2% for a decade. Looking back further though, average inflation was higher as it was pulled up by previous inflationary periods. Although we wouldn’t expect current elevated levels of inflation to persist over the long term, we think it’s prudent to assume a higher-than-2% rate from here.
Retiring a millionaire doesn’t happen overnight. You’ll need a long-term plan, the discipline to stick to it, preparations for unexpected events, and don’t forget about inflation.
Fortunately though, you don’t have to do this alone. Retirement planning is our bread and butter. Our qualified and regulated financial advisers can create a savings plan and an investment strategy to help you achieve your financial goals. You’ll also receive regular reviews to make sure you’re on track.
Although of course retiring a millionaire has a nice ring to it, we’ll help you calculate how much you really need to live the lifestyle you want in retirement, whether that’s a million, half a million or ten million.
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