Best to also have a Personal Portable Pension plan too . . .

Posted on 15th September 2010 by Trevor Reynolds in Blog

Are you counting on Social Security and a Government Pension? Or a Company one?  Best to also have a Personal Portable Pension plan too . . .

 

As you can see, global pension tension is heating up all around the world. This is all part of the “new normal” which basically means get ready to work longer and get a lot less during your golden years.

Portable pension plans are a means for people working abroad to build up a lump sum for their retirement – we can help you get one started.

In signing up for a portable pension plan you agree to a contract. This will be a minimum of five years but is best aimed at your earliest foreseeable retirement age. This will normally be between 55 and 60. You also agree on a monthly amount to put away. The more you put into the plan, the more there will be for your retirement. However, you should not take on an obligation you cannot fulfil.  All plans have a minimum contribution period, ranging from five to twenty-eight months, in which you must make the contributions. Beyond that you are free to discontinue, but discontinuation makes the plan less efficient financially. The flexibility to miss a few payments, if you lose your job or decide to go round the world, is there, but in taking out the plan you should not set the contribution level unrealistically high – your income might increase, but then so might your responsibilities. You should choose a level you are completely comfortable with.  A simple method for doing this is to take your annual disposable income (how much you have left over after your accommodation and living expenses are paid for, including an annual holiday/trip home) and divide this by two. Allocate the annual amount into twelve monthly portions: you should be comfortable with that (and the minimum is US$150 monthly).

This sum is best paid off a credit card – this is convenient, is cheaper than using a bank to make transfers, and after a few months you don’t really notice the money going out. Your monthly contribution is then invested into a series of mutual funds. Doing things this way gives you four advantages: 

  • Access to a diversified range of funds.  The days of opaque mystery funds and lack of choice are long gone. You can be in range of funds, which will sustain overall performance and cushion you from the gyrations of the markets. Yes, you can be in a wide variety of stock funds; you can also be in high-grade or high-yield bond funds, in gold stocks, in resource stocks, or in property income funds.  Diversified portfolios do better in the long run. 
  • Free switching. You can change your funds at any time, switching at zero cost. Diversification matters, but your portfolio can be re-balanced at any time. 
  • Averaging. Investing monthly gives a huge advantage over lump-sum investment.  If the price of a fund falls, you buy more units the next month, and so on, until the unit price turns around.  As you have a large number of units, your gains will be much greater than with a simple lump-sum investment. Plus you don’t have to worry about ‘timing the markets’, which almost never works. 
  • Compounding. These plans are long-term, part of the financial structuring of your life. Anything over ten years affords you the power of compound interest (dubbed by Einstein ‘the eighth wonder of the world’). A return of 9% doubles your money in eight years and quadruples it in sixteen. Your money makes money and the profits make money too.

 As mentioned, these plans are portable. You can take them to where you live next, even if that is the country of your own nationality (there will be some restrictions for residence in the USA ). As they are written technically as life insurance contracts, the investments are held by an insurance company with whom you have a contract for the value of those investments. There are no dividends or distributions. The whole value sits in your plan. There are no taxes to diminish the power of compounding and therefore the full value of the plan until you take the benefits at the end of the plan. 

And don’t forget – all the money you put in is your money.

Find a link to a graph concerning the “cost of delay“. Please don’t hesitate to contact me if you wish to look into setting up a suitable plan for yourself and/or family members. These plans can also be set up to save for education cost and other savings goals. Most plan providers offer special incentives, so it makes sense to compare.

Give us a call and we will help you get one going  03-5724-5100

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