Is a Currency Crunch Limiting Your Retirement or Offshore Saving Returns?

Currency fluctuations may be doing more damage than you know to your expatriate and offshore long-term savings, here’s how to avoid that happening…

Those Britons who have holidayed in Europe in the last six months will know all too well how a negative weighting in the euro currency’s favour eats away at a British pound, but as an expatriate, are you being stung consistently by negative currency fluctuations?

In the opinion of Mark Davies from the Fry Group, many expatriate savers and investors, as well as those thinking about retiring abroad, are losing out in terms of savings’ gains because of currency market blips.  He advises, in a recent article in the Telegraph, that international savers as well as onshore Britons who are actively planning on moving overseas in retirement, think about saving in a currency in which they will earn an income in the future.

For those Britons who are living and working and earning abroad in one currency, saving in another and who may ultimately drawn down from such an investment in a third currency, playing the currency game could prove disastrous.  So, is a currency crunch limiting your retirement or offshore savings returns potentially?

As you can imagine, if a person is currently earning in euro and saving in pounds, they may well be quids in in terms of the size of asset allocation they can buy for example.  However, if you also think that about 18 months or so ago someone who was earning in pounds and saving in dollars was also doing very well, but that nowadays, if they are opting for the same savings approach they will be losing out, you can see that even without buying and selling currencies directly, those who earn, save and draw an income via the same investment vehicle and in multiple currencies risk hitting currency highs and lows and ultimately eroding and boosting and eroding once again, their final benefit sum.

Have you thought about this?

Have you actively thought about the currency a given savings policy is denominated in before you signed up to it?  Have you now thought about reviewing that decision in light of recent currency blips?  If you haven’t, you could be making your offshore savings and investments vulnerable to erosion, or you could be aligning your onshore pension towards a very negative currency exchange rate upon your retirement abroad.

Currency highs and lows as a risk factor need to be considered when you’re looking at how best to protect and enhance your wealth.  An adviser worth his or her salt will also ask you to think about this issue.  They may well explain to you how you can diversify your savings solutions to offset currency risk, but at the end of the day, you have to be aware that it exists so that you can feel secure in any investment decisions that you make.

Tax is another consideration to bring in at this point, because it is not just a question of which currency you’re earning, saving and drawing down in, you need to look at where you are liable for taxation and how much, depending on where you live now, where you earn your income, where you save your money, and finally, where you will be living when you earn an income or take a lump sum from your offshore or onshore savings or investment vehicles.

To conclude therefore, you have to take specialist advice because you are in a unique position as an expat or as a would-be retiree in terms of the ways you can save and earn an income, but also the risks you can potentially expose yourself to however inadvertently – from negativities in currency exchange rate values that go against you, to not correctly tax aligning an investment policy to protect your current and future status.  Do not leave any of these elements of investment planning to chance – speak to an expert.