If I offered you a job with no social security, no pension, no 401K, no contribution to an IRA, would you take it? If your answer is, “Yes”, then welcome to international teaching! For a vast majority of international teachers, there is simply no employer sponsored retirement system in place, and you can not put foreign earned income into typical US retirement accounts. Most international teachers have to fully fund and manage their own retirement, and Kelly and I are no exception to the rule.
The Ant and the Grasshopper
Retirement savings reminds me of the old fable, The Ants and the Grasshopper. The ants work hard all summer collecting food for the cold months ahead, while the grasshopper wants to enjoy the bounty of what is available in the present with no forethought to the coming winter, until it’s too late. In some regards, teachers who work a career in their home county could be looked at as the ants. They work hard, pay into their state pension plan and, hopefully, contribute into all the other retirement programs available to them. When those teachers retire they will have a guaranteed income for the rest of their lives.
If stateside teachers are the ants, then international teachers could easily become the grasshoppers. Enjoying the bounty of the oversea’s lifestyle is easy. There are endless opportunities for adventure and exploration when you live overseas. There are plenty of international teachers who, year after year, will spend fall break in the Maldives, winter break skiing in Europe, spring break in Thailand, and each 3-day weekend will be spent in equally exotic locations. Unfortunately, for some, the enjoyment of the international lifestyle comes with little forethought for retirement.
Kelly and I look for a balance between to two sides. We absolutely love the enriching experience of living and raising our children overseas. However, we are also keenly aware that we are on our own for retirement savings. In order to get the most out of both worlds, we utilize travel hacking techniques to travel on a budget while still making monthly contributions to our retirement accounts (look for more about travel hacking in our next blog post). Having a solid plan in place is critical for reaching your retirement goals.
Getting Out of Debt
First on the check list was for us to get out of our crushing $110,000 of student debt. In order to pay that off, we decided to sell our house in Alaska. We also made a commitment to apply large amounts of our international paychecks to our debt obligation. Amazingly, with the sale of our house and with what we saved our first six months teaching overseas, we paid off our entire student loan amount! Literally, in one year we went from $110,000 in student debt to being completely debt free. It was amazing. With the debt knocked out, we shifted our financial focus to our retirement savings. From the amount of research we did prior to coming overseas, we knew coming in that we would be on our own for retirement funding.
We started researching how to manage our own retirement on a teacher’s salary. Andrew Hallam, author of The Global Expatriate’s Guide to Investing: From Millionaire Teacher to Millionaire Expat and the international best selling book Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School, is a retired teacher who has written extensively on the topic of teacher retirement. Before reading both books, I had no idea what an index fund was, let alone how to manage my own retirement account. Andrew does a great job explaining, step-by-step, just how easy it is to save and invest on your own for retirement.
Choosing a Retirement Fund
Kelly and I follow a simple low-cost index fund method to manage our retirement money. Index funds are a type of mutual fund that provides broad market exposure at very low costs.
Kelly prefers a hands off approach to investing (think of a automatic transmission). She wanted something that she could set a monthly contribution amount to and not think about again for years. For her, a Target Retirement Fund (TRF) is perfect. The TRF is the easiest way for Kelly to be fully diversified, as the funds are designed to be an all in one investment. The TRF is made up of 1000’s of US and international stocks and provides a bond safety net for when the stock market crashes.
Investment companies make choosing a TRF fairly straight forward. They match your current age to an appropriate TRF, since Kelly is in her mid 30’s, an investment company would suggest that she invest in a 2045 TRF, which is typically 90% stocks & 10% bonds. However, we are now international teachers not paying into a state pension or US Social Security, so a 90/10 split was too aggressive. Instead, Kelly selected a 2025 TRF, which is typically 65% stocks & 35% bonds. As Kelly’s gets older, the TRF will automatically rebalance her account to be more conservative by lowering her stock exposure and increasing her bonds.
I, on the other hand, like tinkering with my investments (think of a manual transmission). When it comes to my retirement accounts, I have adopted a 3-fund method. I selected 3 funds for my portfolio:
- Total US Stock Market Index Fund (35%)
- Total International Stock Market Index Fund (35%)
- Total Bond Market Fund Index Fund(30%)
Once a year, I set a monthly amount to go into each fund, and on my birthday, the next year, I log into my account and rebalance the three funds to my desired allocation (35%, 35%, 30%). As I push past 40 years old, I will slowly work on bringing my bond allocation up towards 40%. When the stock market has another big crash, I could log in at that time and manually rebalance my portfolio to the desired allocation. I spend about 20 minutes a year logged into my account managing our retirement funds. It doesn’t get much easier.
Retirement Blogs We Enjoy
Whether your are moving overseas or staying in your home country, it is important to take advantage of your retirement options. Here are a few great blogs if you are interested in learning more about setting up your own retirement.
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