The Cost of Living Longer
By Rob Kay, Senior Partner, Blevins Franks
By making the lifestyle choice to retire in France, you will want to make the most of what the country has to offer, hopefully well into the future.
This may be longer than you expect. Thanks to medical advances over the years and a better quality of life, people are generally living longer than the previous generation. French statistics show that life expectancy for males currently aged 65 is 84, while for women it’s higher at 88. Of course, these are just averages, many of us will live longer, maybe much longer– it has become more common to hear of people reaching their 100th birthday.
Living to a ripe old age does sound rather appealing, provided we are healthy enough. Much more time to watch our grandchildren grow up and much more time to enjoy our well-earned retirement in France. There are, however, implications at both personal and government levels, with the key issue being: can we afford it?
The longer we live, the longer we need our savings to last in order to live as comfortably as we are used to. For peace of mind, assess whether your resources are on track to last throughout your lifetime. Here are the key considerations.
Income and inflation
Starting with the big topic of the moment – inflation. We are getting used to headlines about rising inflation and the levels we have seen this year are certainly an eye-opener on how it can impact our monthly living costs. But even though inflation will hopefully start to come down before too long, even low levels, compounded year after year, will reduce how far a fixed income will stretch in the future.
Say, for example, you spend €5,000 a month. Assuming an inflation rate of 3% a year, in 10 years’ time you could need €6,720 a month to maintain the same spending, and €9,030 in 20 years. So your capital and income would need to grow by the same amount to maintain the same standard of living.
Making your savings and investments last
Many retirees favour low-risk, ‘safer’ investments like bank deposits in their later years. But with potentially 30 years or more to fund in retirement, this can actually be a risky strategy.
British expatriates also need to factor in exchange rate risk. If you receive income in pounds while spending euros in your daily life, depending on currency movements you may find your money does not go as far as it once did, even without the inflation factor.
By following some key investment principles and taking specialist guidance, you can invest capital to give it the opportunity to keep pace with inflation, while keeping risk to a comfortable level. Start by establishing your risk profile then carefully build a well-diversified investment portfolio to suit your circumstances, needs and objectives. Look for investment arrangements which provide some currency flexibility to try and avoid the exchange rate risk.
You could get currency flexibility through some ‘assurance-vie’ policies, a specialised form of life assurance that allows French residents to hold a range of investments in a highly tax-efficient package. There are many different assurance-vie options based in various jurisdictions, not just France, and not all offer currency flexibility, so choose carefully.
A taxing problem – not just for governments
Rising life expectancy is also expensive for governments. The higher the proportion of older people in a population, the greater the costs of services like state pensions and healthcare – and the lower the number of taxpayers that can fund it. The solution usually lies in pension or healthcare reforms and tax increases to finance these escalating expenses. The issue has been exacerbated over recent years with the amount of money governments have had to spend as a result of covid.
Higher taxation can be a considerable threat to your financial security in retirement. Just like inflation it erodes your income, and in France we have social charges on top of income tax, giving us quite a high tax burden. This is where personalised tax planning is vital to make use of available opportunities – in France, the UK, or elsewhere – to ensure you do not pay more tax than necessary.
With many of these arrangements you can combine your tax and investment planning in one exercise, allowing you to tackle the twin threats of tax and inflation at the same time.
Getting the most from your pensions
Pensions are often the key to financial security in retirement, so take care to do what is right for you. You need to consider all your options, carefully weighing the pros and cons. Look at your income needs, investment options and risk, currency risk, what happens to the balance when you die and the tax implications.
There may be ways for expatriates to make pension funds go further, but before making any decisions, take regulated advice to avoid pension scams and establish the best approach for your particular objectives and circumstances. You may be best advised to leave your pension where it is.
Leaving wealth behind
If you want to leave a lasting legacy for your family, you have to make sure you do not spend it all in your own lifetime – without compromising your quality of life today. A strategic financial planning approach – that considers estate planning alongside investing and tax planning – can prove invaluable here.
Estate planning in France is complex, with succession tax based on the beneficiary and succession law imposing forced heirship. If your family includes children from previous marriages, be particularly careful to ensure everyone benefits as you wish them to.
Whatever your stage of life, good financial planning can help you afford the lifestyle you want, for as long as you need, so you can focus on enjoying your retirement in France.
This article should not be construed as providing any personalised investment or taxation advice. You should take advice for your circumstances.
Blevins Franks Group is represented in France by the following companies: Blevins Franks Wealth Management Limited (BFWML) and Blevins Franks France SASU (BFF). BFWML is authorised and regulated by the Malta Financial Services Authority, registered number C 92917. Authorised to conduct investment services under the Investment Services Act and authorised to carry out insurance intermediary activities under the Insurance Distribution Act. Where advice is provided outside of Malta via the Insurance Distribution Directive or the Markets in Financial Instruments Directive II, the applicable regulatory system differs in some respects from that of Malta. BFWML also provides taxation advice; its tax advisers are fully qualified tax specialists. Blevins Franks France SASU (BFF), is registered with ORIAS, registered number 07 027 475, and authorised as ‘Conseil en Investissements Financiers’ and ‘Courtiers d’Assurance’ Category B (register can be consulted on www.orias.fr). Member of ANACOFI-CIF. BFF’s registered office: 1 rue Pablo Neruda, 33140 Villenave d’Ornon – RCS BX 498 800 465 APE 6622Z. Garantie Financière et Assurance de Responsabilité Civile Professionnelle conformes aux articles L 541-3 du Code Monétaire et Financier and L512-6 and 512-7 du Code des Assurances (assureur MMA). Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of retirement schemes. This promotion has been approved and issued by BFWML.
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