When you get into ELT, for most people the qualification sparks a life of travel and adventures. It’s not usually a time for thinking about how you’re going to retire. That’s true of most people in their 20s. But where ELT differs from other professions is that you can carry on that lifestyle for a long time without realising that other people have things like pensions. Living abroad, and typically on a lower income, can mean a lot of people in ELT fall through the cracks when it comes to retirement planning. Let’s look at what that looks like and how to plan for retirement in ELT.
What does retirement look like in ELT?
First of all, what do we actually mean by “retirement”? Retirement, in theory, could be at any age. We mean a stage in life where you no longer have to work for money and can live off other sources of income. All your choices of how you live your life from then on are no longer based on the need to work to pay your living expenses. You might continue to do the activities you used to do for income but, crucially, you don’t have to.
That source of income might be a combination of state retirement benefits and income from pensions and investments built up over your lifetime. Or, you might be lucky and get a windfall like an inheritance, lottery win, or the profits from selling an asset that mean you never have to work again.
Without any source of non-work income, you can’t retire at all.
Unfortunately, this is the retirement situation a lot of people in ELT find themselves in, especially if you’ve spent a lot of time making use of the amazing global passport the TEFL qualification gave us. Many of us (including me!) have spent years earning under the table and off the radar, all over the world. That’s built up a teaching CV, fantastic photos, and international friends but, unfortunately, no pension and not enough savings to retire on.
If that’s you, or you want to avoid it becoming you, read on.
How to plan for retirement in ELT
Whatever your career field, all retirement planning is similar in principle. It’s about maximising what you do with your money today to provide for Future You.
ELT retirement planning, for most people, means planning for retirement on a low income. But don’t let that put you off. If you plan, you’re automatically going to be better off in retirement than by burying your head in the sand. You can make it work if you know what to do and, preferably, start as soon as possible. (Make the day you’re reading this be Day 1.)
The problem comes when people fall for what I call The Grandparent Myth. Many of us remember our grandparents, other older relatives and friends’ grandparents as seeming rich and happy. They handed out treats and money and always seemed to go on holidays. But, in their day, houses were affordable on a single income and mortgages were cheap and shorter, living costs were lower.
And, crucially, they must have saved carefully and made other investments they probably didn’t discuss with you.
Unless you luck into money somehow and own your own home, retirement like this won’t automatically come when you cross some magic age line. You have to make it happen from the actions you take now, just like they did.
How much do you need for retirement?
This depends on you so there is no real magic figure for everyone. But it’s still good to work it out so you have a goal and can start trying to reach it.
Some advisors suggest aiming for a figure of 70% of your current income. Adjust for inflation using this calculator.
An alternative is to plan based on your current income (adjusted for inflation) as your target income for retirement too. At some point you might want to estimate care needs too if private care is your expectation, or take out insurance against that possibility.
If you’re aiming for a luxury retirement with travel and expensive hobbies, calculate the income needed for that (adjusted for inflation).
Retirement income: How to work out how much you’ll need
Planning for retirement in ELT is a bit of a novel concept in itself as no-one mentions it much.
Work out what you know you’ll get at retirement
Investigate and add up the state pensions you can expect to get from all the countries you’ve lived and/or worked in. If you’ve lived in the UK check out this guide on how to get a full UK pension even if you don’t live there now or aren’t British.
Find out what you’ll get from private pensions, workplace pensions and other investments. You need to be able to predict roughly how much value they’ll have at the age you retire.
As a rough guide, plan to withdraw 4% of these pensions and investments per year. That’s your pension income on top of your state pension.
Identify the gap
Once you’ve totalled the above and compared it with the income you want to get at retirement, you’ll either be on track, overfulfilling your requirements (yay!) or have a shortfall.
If there’s a shortfall, you’ll need to pay more into private pensions, tax free investing, and save into low-risk investments to build up a pot that will pay you in retirement. Here’s a post on how to increase your pension if those numbers aren’t coming up how you’d like them to.
Automate payments!
Whatever you do, the single biggest thing is to automate payments into these pensions and investments. Set up direct debits and, if you stop noticing the chunk missing out of your spending allowance, raise the direct debit. Keep raising it periodically until you’re on track for your goal or it starts to be unmanageable.
Get professional financial advice (BUT be careful!)
The less you know about something, the easier it is to be scammed or ripped off. Or to just not properly understand advice you’re given and to always feel a bit lost when looking at your supposedly sorted finances.
This is why I started teaching personal finance to my ELT tribe. We’re especially vulnerable because we usually come from Arts backgrounds, avoid money stuff and get no education on it. Pensions weren’t mentioned at all anywhere I can think of by employers, teacher trainers or at professional conferences etc. We’re confused how it works, disadvantaged by language barriers and ripe prey.
But, once you understand how pensions and investing work, you can meet advisors armed with knowledge and able to understand what to ask and what the answers mean. So, by all means, consider paying for some planning advice. Especially at retirement when you’ll be interested in how to access your money without paying too much tax.
But pay a one-off fee for their time and don’t pay any commissions or ongoing management fees. If it’s your local bank manager, you’re getting the appointment for free but you’re paying in high fees hundreds of times over, I’ll bet anything on it.
This is the kind of knowledge my No-Stress Money Plan gives you. You’ll even be able to set up everything yourself if you want.
It’s what I did once I understood it.
A lot of people want you to think this stuff is too complex to do alone. Don’t let them! You can do it, just like my client Jennie did after her financial advisor told her it was too difficult for her to understand…