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Investing for Retirement: How International Educators Can Plan Ahead

Most international educators are likely to repatriate to their home countries at some point, so it’s always wise to plan ahead financially to have a comfortable landing when the time comes.

Wallace Ting | @TingWallace
December 16,  2019
Perspectives

The life of an international teacher can be very adventurous and exciting. You’ll have the opportunity to immerse yourself in both a new school and culture, meeting new friends and undertaking new experiences on the way. And, with some sound financial planning, you’ll be able to maximize your earnings and make the most of your overseas income.

At some point or another, however, the adventure will stop for most expatriates, and they will probably look towards relocating or reestablishing themselves back at home. When that point finally arrives, you’ll want to have made sure that you have a nice nest egg financially waiting for you back home. Financial foresight will provide you with a sense of flexibility, freedom, and tranquility the day you set foot on home soil. Planning in advance will allow you to focus on other important aspects of your relocation such as unpacking, catching up with family and friends, or pursuing new career options. Most teachers I’ve spoken to have said that they’re able to save anywhere between 10-40% of their paycheck. Of course, this varies greatly depending on whether they have dependents, their spending habits, loans and student debt, and salary and benefits structure. But assuming that you’ll be overseas for a few years and can save a good percentage of your salary, where should you invest or store your money?

YES – Index Funds

Index funds are a portfolio of stocks that attempt to mimic a financial market index. Index funds pattern themselves off well-known indices such as the S&P 500, Dow Jones Industrial Average, Nasdaq Composite, and more. Generally speaking, index funds are a safe and reliable investment if you have a longer-term outlook on your finances since the underlying assumption is that long-term market performance will outperform any single stock or investment within said market. Additionally, index funds do not require any active management and typically have much lower expenses and fees versus other types of mutual or investment funds. According to Bankrate, the top five index funds as of December 2019 are:

  1. Fidelity ZERO Large Cap Index
  2. Vanguard S&P 500 ETF
  3. SPDR S&P 500 ETF Trust
  4. iShares Core S&P 500 ETF
  5. Schwab S&P 500 Index Fund

Investing in an index fund is really as easy as signing up and making an electronic transfer to start the fund. Most services offer automatic monthly contributions, so you can essentially leave your index fund on autopilot.

Investing in index funds provides you access to a wide array of stocks and requires little to no active management.

NO – Individual Stocks

Playing individual stocks is almost like gambling – big risk, big reward. An educated stock trader needs to regularly follow a company’s earnings reports and product announcements and try to time the market. Do you really want to play day trader in a foreign time zone with a full-time job? Index funds provide both diversification and exposure to a variety of blue-chip and small and mid-cap stocks, so unless you have both the time during the day and some reliable stock tips, my advice is to stay away from individual stocks.

YES – Rental Real Estate

Andrew Carnegie once said that 90% of millionaires obtained their wealth through investing in real estate. In the United States, mortgage interest rates are still fairly low – around 4% for a 30-year fixed term. By financing the purchase of a home, you could rent it out while overseas and likely have the monthly rental income cover the cost of your monthly mortgage payments. This arrangement not only builds positive cash flow and equity into your home but also sets you up nicely with a place to live when you do eventually do decide to repatriate. This positive cash flow and equity situation looks even better when you consider the potential appreciation in home value, which is likely over a longer period. Finally, buying a house with a mortgage allows for a number of tax advantages, such as deducting the interest payments on your mortgage and property depreciation from your taxable income. Be sure that you check your home country tax laws or consult with a professional if you are unsure.

Make sure you do your homework by speaking to different mortgage lenders and realtors and taking the time to understand both the purchase and rental market in the city where you’re interested in investing. There are a variety of tools out there such as Zillow, Realtor.com, and LendingTree which can help establish market prices and mortgage rates.

One of the leading asset classes to generate wealth continues to be real estate, which will produce cash flow, equity, and appreciation if managed well.

NO – Vacant Real Estate

For all of the benefits that investing in real estate can bring, it can also bring its fair share of headaches. If not managed properly, a property could end up in disrepair and vacant. A vacant property not only fails to generate positive cash flow but also will end up being a drain on your finances due to mortgage payments, repair costs, homeowners association dues, and taxes. If you do plan on going down the real estate avenue, make sure that you have either a trusted family member, friend, or professional property management company around locally to help take care of issues when they ultimately do arise. Trust me – nothing is more stressful than getting a call that your rental property has a major plumbing leak when you’re halfway around the world without any trusted individuals or companies around to assist.

YES – Retirement Accounts

Although most international schools offer benefits such as airfare, housing, and professional development, retirement typically isn’t one of them. Therefore, you won’t have part of your salary paying into social security or a retirement plan that matures once you reach a certain age. One retirement vehicle to consider would be a Roth IRA (Individual Retirement Account). Roth IRA contributions are made with after-tax funds, but any gains made from your contributions are tax free. If you’re young, gains over a 20-30 period can be fairly significant, and accessing this capital tax free can be a huge financial incentive. No matter what retirement plan you choose, make sure that you read the fine print and understand the terms and conditions, such as early withdrawal penalties.

NO – Savings Accounts

Interest rates are at an all-time low, with some countries even offering negative interest rates. Even for banks that offer interest on savings accounts, today’s rates are fairly minuscule, with most interest rates ranging anywhere from 1.2 – 1.8%. For reference, that means that a deposit of $10,000 would yield a little more than $150 in interest in one year at 1.5% interest. With a number of other investments that are likely to give greater returns, a savings account should probably be at the bottom of your list.

YES – Crowdsourced Loans

I’m sure you’ve all heard of the sharing economy – Lyft, Uber, Airbnb, and WeWork are all great examples of new business models that have created new markets and opportunities. This model also exists for personal loans, with services such as Prosper and Lending Club. If you have some excess cash to invest, you can choose to fund partial loans of individuals seeking personal loans. By funding loans partially, you mitigate your risk and also trust that the platform does it due diligence on loan collections. Although there is some inherent risk, you have the ability to choose loan portfolios from borrowers with higher credit profiles. According to the Prosper website, historical returns range anywhere between 3.5 and 6.8%.

NO – Vacant Real Estate

For all of the benefits that investing in real estate can bring, it can also bring its fair share of headaches. If not managed properly, a property could end up in disrepair and vacant. A vacant property not only fails to generate positive cash flow but also will end up being a drain on your finances due to mortgage payments, repair costs, homeowners association dues, and taxes. If you do plan on going down the real estate avenue, make sure that you have either a trusted family member, friend, or professional property management company around locally to help take care of issues when they ultimately do arise. Trust me – nothing is more stressful than getting a call that your rental property has a major plumbing leak when you’re halfway around the world without any trusted individuals or companies around to assist.

YES – Retirement Accounts

Although most international schools offer benefits such as airfare, housing, and professional development, retirement typically isn’t one of them. Therefore, you won’t have part of your salary paying into social security or a retirement plan that matures once you reach a certain age. One retirement vehicle to consider would be a Roth IRA (Individual Retirement Account). Roth IRA contributions are made with after-tax funds, but any gains made from your contributions are tax free. If you’re young, gains over a 20-30 period can be fairly significant, and accessing this capital tax free can be a huge financial incentive. No matter what retirement plan you choose, make sure that you read the fine print and understand the terms and conditions, such as early withdrawal penalties.

NO – Savings Accounts

Interest rates are at an all-time low, with some countries even offering negative interest rates. Even for banks that offer interest on savings accounts, today’s rates are fairly minuscule, with most interest rates ranging anywhere from 1.2 – 1.8%. For reference, that means that a deposit of $10,000 would yield a little more than $150 in interest in one year at 1.5% interest. With a number of other investments that are likely to give greater returns, a savings account should probably be at the bottom of your list.

YES – Crowdsourced Loans

I’m sure you’ve all heard of the sharing economy – Lyft, Uber, Airbnb, and WeWork are all great examples of new business models that have created new markets and opportunities. This model also exists for personal loans, with services such as Prosper and Lending Club. If you have some excess cash to invest, you can choose to fund partial loans of individuals seeking personal loans. By funding loans partially, you mitigate your risk and also trust that the platform does it due diligence on loan collections. Although there is some inherent risk, you have the ability to choose loan portfolios from borrowers with higher credit profiles. According to the Prosper website, historical returns range anywhere between 3.5 and 6.8%.

Even if you have 20-25 years left until retirement, it’s never too early to plan ahead, particularly for international educators who might find themselves back home at any given moment.

If planned with foresight and discipline, international educators can make the most of their professional situation by not only traveling abroad and working in close-knit educational communities, but can also set themselves up financially when they eventually do return home. It’s important that you do your homework and research, as everyone’s economic realities and life situations are very different – but generally speaking, disciplined spending, routine saving, and smart investments lead towards financial freedom and flexibility later in life.

Dr. Wallace Ting is originally from Dallas, Texas and began his career in education as a public school mathematics teacher in Texas and New York City (as part of the NYC Teaching Fellows program). He has also worked in international education for a total of 10 years as a Principal, Deputy Director, and Director in Guatemala, Colombia, and Nigeria. Currently, Dr. Ting resides in Orlando, Florida with his young son, Phillip and enjoys playing tennis, camping, and hiking.

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