retirement planning for digital nomads

Retirement Planning for Digital Nomads

You won’t find much detailed information about retirement planning for digital nomads so you need to do some digging. Retirement planning is complex, and a simple scan of online articles on this subject will reflect that.

I suggest you skip wikiHow’s Save for Retirement as a Digital Nomad as it is too generic to be of real value (sorry wikiHow!). In a nutshell, it recommends to start saving as soon as possible, cut unnecessary expenses and keep all bank accounts in one country (and the article even suggests keeping all accounts with one bank). This type of “advice” may not suitable for most digital nomads, particularly the point about doing all your banking with a single financial institution. Too many times bank accounts are closed without the right to appeal, for any number of reasons, and banks can go bust if the government doesn’t step in to rescue them financially. There may also be some technicalities linked to how long you need to stay in a country to continue to do your banking in that country. Just look at digital nomad forums and you will read about experiences of getting locked out of bank accounts.

Having said this, the first and most obvious step is indeed to start saving as soon as it is feasible, to buffer any income fluctuations. This article explains in more detail what options are available.

Build a simple cashflow on an Excel spreadsheet with income and expenditure and work out how much you could potentially set aside on a monthly basis to build retirement income.

Limited Information about Retirement Planning for Digital Nomads

Information and advice online about retirement planning for digital nomads are limited. If you look at articles aimed at freelancers, you will find more details but bear in mind these sources are not specific for location-independent freelancers. An interesting article from India’s The Economic Times looks at how freelancers can plan their finances. The main assumption is that a freelancer has running costs like utilities; in other words, it is a given that a freelancer resides permanently in one country. Priority is given to buying private health insurance and then look at a balanced or diversified equity fund. Also, the article looks at Public Provident Funds, which are investment schemes backed by the Indian government. Depending on where you are in the world, you can look into portfolio funds.

For the uninitiated, a managed fund from providers like Vanguard, Fidelity International or AJ Bell Youinvest could be a good starting point. For example, with Vanguard (see Investopia report) the opening balance is $1,000, but beware of fees, which can severely affect returns if you want to trade frequently.

Before you take the plunge, look at the local Association of Financial Advisers and speak to an independent financial advisor to talk you through the options that are best suited to your situation.

What the EU Says about Pensions for Freelancers and Self-Employed People

This article from the European Commission hint that freelancers and self-employed people may face difficulties in accessing pension rights. Pension rights differ among member countries. As people live longer, there are proposals to promote later retirement and offer tax incentives. Pension schemes should also reflect career breaks. For those who are self-employed, there are proposals to promote supplementary pension savings. In summary, these proposals aim to make social protection accessible to the self-employed because they are more likely to face income fluctuations. The idea is to allow access to social security benefits including the transfer of such benefits between social security schemes.

The European Commission has published six case studies about social protection access for the self-employed. One case study is particularly interesting and it looks at a self-employed person in the Netherlands without employees. In summary, the most viable option is a voluntary pension saving arrangement such as annuities and life insurance. There are also occupational pension schemes for self-employed people with no personnel, and some of these schemes are compulsory in the Netherlands (for example, for General Practitioners).

Working into Old Age Is Not an Option

People in self-employment often believe that there is no other option but to work until the day they die. However, this may not be viable in the long term for a number of reasons:

  • with ageing comes lower productivity and, in the worst case scenario, illness

  • there may be some caring responsibilities in time that divert efforts from revenue generation

  • the market may require different skills over time and supplementary training may become too expensive

Finding an Independent Financial Advisor

Look for an advisor specialising in pensions, who is a member of an association, who is available to discuss your personal situation in detail and has experience working with location-independent freelancers. Think about the long term – if you change financial advisors every few years, you will need to pay a commission each time. Make the most of any free consultations being offered to evaluate how much an advisor would be able to help you. If possible, ask for references and don’t be rushed into making a decision (you can find more detail in this article).

This article does not constitute professional advice but it summarises available information.

Are you a digital nomad who has a retirement plan in place and would like to share your story?

Are you an independent financial advisor who would like to contribute a guest post? Please email paola@energya.co.uk

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