If you’re an international teacher at one of the world’s high paying private schools, you might initially think I’m a driveling fool for making a ludicrous claim.
But here it is:
Most teachers at the world’s highest paying schools (such as Singapore American School, the International School of Bangkok, and Saudi Aramco) will eventually have far less money than the educators they left behind in their home countries.
They don’t have to fall short. But most will.
Teachers at home live a back end loaded lifestyle, while many international teachers enjoy front-end loaded privileges. Expatriate teachers, for example, often travel prolifically, live in relative luxury, enjoy higher salaries and pay lower taxes.
Like NBA basketball players, their rewards are up front.
Teachers at home aren’t exactly cash flush icons, but they enjoy back end rewards including Social Security (for Americans), Canada Pension Plan (for Canadians) and defined benefit pensions (provided by many public school systems). Relatively speaking, expatriate teachers can suddenly become prodigal sons and daughters holding half-filled tin cups when they retire.
If you don’t pay into these programs, you won’t reap their benefits.
Sure, these national, provincial or state benefits could be shaved in the future. But the world’s economic boat is a bit like Noah’s Ark. The hare can’t gloat when the tortoise’s end of the boat starts sinking.
Regardless of what happens, most public school teachers have greater capacities to swim.
When John Wiley & Sons sent a copy of my book, Millionaire Teacher, to The National Post’s Jonathan Chevreau, he didn’t want to read it. As a veteran finance writer for decades, he views public school teachers as automatic millionaires. And he’s right.
“When a review copy of Millionaire Teacher first landed on my desk, initially I didn’t pause to look at it… From where I sit, any career teacher who makes it to age 65 is already a millionaire, since the rest of us would need $1 million of capital in order to spin out an annual $50,000 from it.
So my initial impression was that the very phrase ‘Millionaire Teacher’ was redundant.”
So…do international teachers need one million dollars in capital to float like a teacher in Pennsylvania or British Columbia?
Nope. They need a lot more.
Besides their pensions, the average retired public school teacher has a few other goodies lined up as well:
- A mortgage-free home (and sometimes a second rental property)
- Between $100,000 and $200,000, or more, in investments
- Partial Canada pension plan payments (or its U.S.equivalent, social security).
International teachers need to create backward design models to plan for similar benefits. And it can be done. We can have the front end loaded thrills and the back end loaded benefits—in a different form.
But we need to follow a few important rules:
- Ensure that your investments are separate from your insurance policies. Investment products that couple the two, should certainly be avoided.
- Don’t pay sales charges to buy actively managed mutual funds.
- Save like crazy.
You don’t want to rob Peter to pay Paul—especially when their names are synonymous with yours.
If in doubt, go back to rule #3:
Save like crazy.
If you’re living in a dream world, it could turn into something far less pleasant.
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20 comments
woodes34 says:
May 11, 2012 at 6:47 am (UTC 8 )
Sadly Accurate post Andrew!
Most of my peers at a “preeminent” International School in Shanghai are living a life that would be considered beyond lavish at home. My wife and I are quietly smirked at for waisting our time on our two rental homes, or for keeping a small summer home in the states rather than traveling to a luxury resort for part of the summer. When I bring up the idea of investing regularly I am met with, “it’s too confusing”, or “I don’t have that kind of extra money”.
We actually have a group who affectionately refer to themselves as the “Five Star Girls” Daily large Starbucks coffee, ten dollars salad lunches delivered to school, and two hour massages at the highest end places are their routine. I’m afraid many of these ladies are in for a five star reality check as they near retirement.
Andrew Hallam says:
May 11, 2012 at 7:37 am (UTC 8 )
Woodes 34,
Unfortunately, you’re absolutely right. I think it should be the responsibility of the administration to show every international teacher the benefits they are relinquishing by teaching overseas–and then a sample plan of how they can make up the difference. The five star girls are giggling like drunks while their boat slowly fills with water–and for them, there’s no land in site.
International teachers like you won’t have a problem. I know it’s going to be hard, but keep throwing the five star girls bailing buckets. It’s their choice what they’ll do with the buckets you toss. But at least (if you’ll pardon the mixed metaphor) you’ll be bringing horses to water. Whether they drink it or not is up to them.
Robber Baron says:
May 11, 2012 at 9:16 am (UTC 8 )
It gets worse . . .
Although the S. Korean government withholds national pension payments, most expatriates in here are eligible to cash-out upon departure. Instead of retirement funds, it becomes another ‘bonus’ for teachers, many of whom splurge rather than invest.
The number of 65+ teachers working abroad because they can’t afford to retire should be a wake up call to all.
(Of course, some keep teaching because they love to, they can afford to volunteer or . . .)
J says:
May 11, 2012 at 7:12 pm (UTC 8 )
Andrew,
Are you still teaching?
Also, I have always wondered if you went over to Singapore because you had a large investment portfolio at a young age and they have very favourable capital gains taxes over there?
I always enjoy your blog, especially as a fellow teacher. I took the other route where you can earn a higher salary and still pay into your pension by spending my first few years teaching in the far north. My wife, a nurse, and I were able to save $60K per year with our additional salaries and living extremely frugally. It definitely sets you up in the right direction.
Cheers,
J
Andrew Hallam says:
May 12, 2012 at 9:24 am (UTC 8 )
Hi J,
I actually moved to Singapore for the adventure of seeing the world. My decision wasn’t a financial one.
It does sound like you’ve done really well though. I’m really impressed by how much you and your wife were able to save. How long did you live up north? And where do you live now? Do you still save prolifically? Your story is pretty inspiring! And smart.
J says:
May 12, 2012 at 9:54 am (UTC 8 )
Hi Andrew,
We are actually still up north in Salluit, Quebec. It is now our fourth year here although we missed most of the year with a newborn.
We originally looked into working abroad, but decided on going up north as an adventure. Our plan was to work two years and travel. However, two turned into three plus a baby so now we are at 4. I think the 5th will be our last as we have accomplished a lot and the life here is more challenging than that in Montreal, where we are from.
The whole process has put us far ahead of where we would be had I just worked in Montreal and has set us up with a ton of financial options moving forward.
Cheers,
James
Andrew Hallam says:
May 13, 2012 at 8:41 am (UTC 8 )
Hey James,
I told my wife your story and she was amazed. Out of curiosity, how much did rent cost? We’re both so impressed by how much you two saved! If you ever move overseas to a place like Singapore, you’ll likely save even more than that. Very few expats do, but I have a feeling that you and your wife and like my wife and I. And we can also save plenty.
Great work! And you’re right. It sure does give you more options in life when you don’t become a slave to materialism
James says:
May 14, 2012 at 2:48 am (UTC 8 )
Rent is $77.50 per pay, but with an additional $700 added on as a taxable benefit at the end of the year.
Although we have been fortunate to put away so much so early in life, our savings are not that crazy.
Combined we take home about 75K-80k per year, probably closer to 75K. Our rent is already deducted from our pay. Hydro is free (not a taxable benefit), this is part of the James Bay Agreement. So all we have to pay phone, internet, cable, food, and entertainment.
Food is expensive (see below) but entertainment is negligible. The are no opportunities to spend money. There are no movie theatres, restaurants, etc. You are okay as you as you don’t order too much off of amazon. This is by far the biggest “advantage” of living in the north. It also means that social gatherings are done at people’s houses and are far less expensive.
Our trips, $3000 round trip to Montreal, are also taxable benefits so I don’t use them all.
So in all, we take a ton of RRSPs (I count this in our savings number although I guess that money is worth less as I must pay tax on it.) which means we don’t get hit with any of our taxable benefits and we get a small amount back.
So as you can see, our rate of saving is not that crazy. I am not picking clams
for food or anything of that nature. Although I am often given food by my students (arctic char, geese, polar bear, caribou) which lowers my food cost.
Just for shock value, I will list some of the cost of food at the two general stores:
- Pop is $2.25 (but it goes up to $4.25 in the spring).
- Frozen pizza is $15
- cranberry juice is $20
- pack of grapes – $9.00
In general, food that can be shipped on a boat, dry food, pasta, etc. is much cheaper than fresh produce. However, there is a new food subsidy program that makes healthy food not as overpriced as before. For example, milk dropped from $10 for 2L to $5.89.
I guess this more than answers your question.
Cheers,
James
P.S. I have a couple questions of my own:
1. Are you still teaching or have you given this up for a career in writing?
2. What are the salaries and benefits like at the international school compared with teaching in BC? Could you list the salary scale?
3. How much is housing in Singapore?
Andrew Hallam says:
May 14, 2012 at 6:26 pm (UTC 8 )
Hi James,
To answer your questions:
1. Are you still teaching or have you given this up for a career in writing?
For me, teaching is a lot more fun than writing. Although, I’ve been enjoying teaching half time this year, and writing on alternative days, I’ll be back to teaching full time next year. I really love teaching.
2. What are the salaries and benefits like at the international school compared with teaching in BC? Could you list the salary scale?
Listing salary scales is always going to give misleading information because so much depends on costs of living, taxes, costs of coming back home for visits, costs of transportation etc. If you want to buy a 3 year old used car over here, a Toyota might cost you $70,000 or more.
But you can still (if you’re careful) save much more money at a high paying international school, than people typically do in Canada. Couples (with 2 kids, for example) can save much more than $60K per year. But very few of them do. Most people catch something I call “expat-itis”.
3. How much is housing in Singapore?
My rent is $4,700 per month (roughly $4000 Canadian) but my school pays for it.
AnotherReader says:
May 12, 2012 at 10:30 am (UTC 8 )
Andrew,
What’s your thoughts on rentals. We refinanced our properties last summer and put both on a 15 yr note. Both are renting for full payment plus a little extra. The rental allow for major (legal) tax deductions and in 15 yrs or less will be paid for in full (along with our current home). The will supply about 3.4 k per month once paid for. So with the rental income , tax deductions, and property value increase ( not great but an increase), seems to be more stable of a plan than markets which have been unstable for many years and no sign of recovery.
thoughts?
Andrew Hallam says:
May 13, 2012 at 8:31 am (UTC 8 )
Rentals are great when the rental yields are high enough. And it sounds like you have an excellent plan in place. As for stock markets, they’re never really stable (ever) but the 4% rule can be applied even when they aren’t. From 1965 to 1982, for instance, the markets jumped sideways for 17 years. Yet investors still (even during that period) could have withdrawn 4% per year, indexed to inflation from a balanced portfolio of stocks and bonds. Dividends were very generous, of course, and interest rates covered the rest, in the bond department.
The best time to add money to markets (and American real estate) are during times of duress and dismal outlooks, of course. With U.S. real estate especially in the dumps, and the stock markets going sideways, it’s a great time for asset accumulators like ourselves.
Darryl Stang says:
May 15, 2012 at 3:02 pm (UTC 8 )
Hi Andrew,
While I understand and in many way agree with your perspective, there are some reflections. While living overseas people do live a luxuriant life style – above and beyond their means, they do at home as well.
As well, many states now have done away with pensions, or their pensions have been dramatically reduced, and will continue to do so as long as our economies become more and more pinched financially.
It is much easier to save overseas than it is at home on a teachers salary for sure. I have lived overseas for almost 20 years, and have been able to save a great deal, but it is the attitude you carry to focus on saving, and experiencing, that makes living overseas so great.
On the side, Saudi Aramco, as I know now from personal experience as I am here now, is a clear outlier in teacher salary. Saving a $1,000,000 is no issue and can easily be done in a very short time. Maybe its for you?
Good luck in your endevours.
Darryl
Andrew Hallam says:
May 17, 2012 at 9:00 am (UTC 8 )
Thanks Darryl,
I do know a teaching couple at one school who save $140,000 USD per year internationally. They’re in Asia, not Saudi. Do couples usually (rarely, or never) save $140K annually at Aramco. I have heard that it’s the highest paying school in the world, but I haven’t yet heard of a teaching couple topping $140K in annual savings. What can you tell me. Always curious..
Andrew
Invest It Wisely says:
May 16, 2012 at 4:16 am (UTC 8 )
Hey Andrew,
I hadn’t thought of the pension angle in terms of needing a million in assets to spin off a $50k pension, but it makes a lot of sense. In this environment you’d need even more than a million, as the risk-free rate is very low.
bobbyb says:
December 11, 2012 at 1:06 am (UTC 8 )
Hi Adam,
Just finished your book. Have taught overseas for many years in different locales. 5 years in Vegas barely gets me vested. I just contacted Vanguard and they said only permanent residences can create an account with them. We do own property in Vegas but we are renting it out. We have UVL’s, do you not recommend this? Can we change things up with Metlife and just get plain life insurance? We’ve taught in many places and I’d like to consolidate everything with Vanguard is this possible? We teach at the big school in Cairo at the moment, pay is good, but we still find it hard to save much, we can invest a little. But our kids school trips, 529 plans, uvl’s are all taking things away. We don’t travel extensively but a Christmas trip to Nepal and summer in the states even staying with friends and family is usually a 10K affair. Anyway I enjoyed the book, say hi to the Craigs for us!
Bob
Andrew Hallam says:
December 12, 2012 at 6:50 am (UTC 8 )
Bobbyd,
When you fill out the Vanguard application online, list a U.S. address and don’t list a foreign employer if it’s asked for on the application.
Frank Welker says:
December 11, 2012 at 10:47 pm (UTC 8 )
Great article. I have been internationally teaching for 10 years after leaving the US. Im actually heading to the other Singapore school (UWC) and hope to save a large chunk. But I think i will be playing catchup. If I have about 50K in stocks at the moment (age 40), diversified basically near your ratios – is it beneficial (I know it must be, perhaps the better question is how much) to try and catch up for previous follies and suffering from expat-itis?
Andrew Hallam says:
December 13, 2012 at 2:02 pm (UTC 8 )
Hi Frank,
I think you should try to save quite aggressively. Yes, putting your money in U.S. and international stock indexes, with a bond component close to your age would be a good thing. But save considerably while you are here. You can still end up doing really well, and it’s going to be a rewarding challenge when you see your net worth climb, thanks to your diligent savings. But as you mentioned, you are behind the eight ball a bit. All the more rewarding it will be, however, when you clear that eight ball and start working on the rest of the table.
David says:
January 1, 2013 at 11:59 pm (UTC 8 )
Just finished your excellent book. You rock. Ready to invest. A few questions first if I may…
Wife and I in our first year at the best international school in Bangkok. She had no full time gig back in New York, so it was just me that walked away from a future fat pension by leaving my position after 10 years. Hoping our combined 130k here (tax and rent free) beats my single 100k salary with all the suburban expenses (mortgage, car, etc). We hope to save at least one salary here. Basically my question is: did we make a mistake? (No pressure!) Seems like it will be tough to save over 1million after sending my two little boys to college. Sometimes I feel like we should have just stuck it out back home, even though there are so many benefits to living abroad (another topic in itself). Please be honest. Thanks.
Any US tax considerations for index funds I should know about, being that we plan to retire back in the US someday?
Finally, you mention Vanguard Target Retirement funds in your book. Wow they seem easy. Any disadvantages vs. the standard allocation you recommended to Kris Olsen on p. 102?
Thanks so much. You are a rare beacon of truth out there!
David
Nube says:
January 2, 2013 at 12:22 am (UTC 8 )
Hi Andrew. Great book – it’s getting my husband and I to really talk about our retirement.
One question that comes up: should we pool our money and invest together (in index funds of course), or separate and invest in different funds to build slightly different portfolios? BTW I plan to retire 6 years earlier than my husband.
Thanks so much!