What To Do When You’re Financially Failing

Last Tuesday, I received the first 500 copies of my book, Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School. 

Naturally, as the author, the publisher gave me a discount, but I still had to pay for them, and I feared what probably goes through the minds of many overly ambitious authors:  Will I still have 450 of these books collecting dust in a closet, ten years from now?

I took the books up to the school I teach at, and within ten days, more than 400 of them sold – with many of the buyers coming back later for multiple copies.

My school is a pretty big place – it’s the largest international school in the world, with more than 300 teachers.  But two of my friends (I’ll call them Peter and Jane) told me flat out:  We don’t want to read your book.

Now, I’m sure there are plenty of people in the world who wouldn’t want to read my book.  But this felt pretty strange.  I wasn’t asking them whether they wanted a copy or not, and we were at a party… without a book in sight.  Then Jane explained,   “We’re so far behind, financially, that we don’t even want to read it.”

That’s when I realized that there’s a demographic that my book doesn’t address.  What if you’re 50+ years of age, without any savings, and with no pension to look forward to?

Peter and Jane (both Americans) have taught internationally for their entire careers, so they won’t be able to collect U.S. social security.  Unlike most European or North American public school teachers, they won’t be collecting a teacher’s pension either.

They’re 50 years old, but they’re comparatively broke.  First, I want to tell you how broke they are.  And it might require a perspective switch on your part, if you’re living in Canada or the United States.

Here goes:  They have $180,000 in savings, and no house.

I can hear you right now, “Andrew, that isn’t broke… anyone having $180,000 isn’t broke.”

But consider this… the average retired American was receiving $1,177 per month in Social Security payments, as of January, 2011.  This amounts to a gross income of $14,124 per year.

Let’s assume that Peter and Jane were American based retirees who would receive a combined Social Security income of $20,000 a year. 

The problem is that they aren’t based on the U.S., and they won’t qualify for social security.  If they want to continue teaching overseas, and they want to create a $20,000 annual payout (which they could derive from investments) then they could purchase, upon retirement, an annuity that will pay them $20,000 a year….to replace what they wouldn’t be earning in social security payments.

Robert Wasilewksi, a money manager in Maryland, has a fabulous post on his blogsite, titled Create Your Own Pension where you can see what kind of annuity investment Peter and Jane would need for $20,000 in annual income.  In most cases, a retired couple would need to give an insurance company (the annuity provider) $350,000 upon retirement, to replace a $20,000 annual social security payment.

That’s why my friends are comparatively broke.  After working overseas for their entire careers, they only have $180,000 in savings.  Just to match stateside American couples’ social security checks, they’ll need to double the total value of their investments.

But it’s not all doom and gloom for Peter and Jane.  They don’t need to give up.  Here are a few options that might help:

1.  Leave For The United States

They could keep their teaching jobs overseas for now, but aggressively seek employment in the U.S.  Once they land a U.S.-based job, they could move back to the U.S., earning enough credits (ten years of work) to qualify them for social security.

 Financially, what would this move be worth?

 The equivalent of $380,000.

 After all, it would take a $380,000 deposit into an insurance annuity to provide the equivalent of a $20,000 Social Security payout.

2.  Start Living Frugally And Increase Their Salaries

International school teaching couples can save significantly more money than most public school teachers, if they choose the right places to work.  It might not be number one on Peter and Jane’s list, but teaching jobs at Saudi Aramco could allow them to save a combined $110,000 a year, while providing an extraordinary health care benefits package.  Even if Peter and Jane were extremely conservative, choosing to put the money in a guaranteed instrument averaging 3% per year, they would have an account value of $1.5 million after ten years.

You can see how I made the calculation above.  I took their current savings of $180,000, added $110,000 annually, and compounded the money for 10 years, at 3% annually.

If Peter and Jane bought an insurance annuity (at age 60) with $1.5 million, they would earn an annual payout of nearly $90,000.

3.  Retire Abroad

United States health insurance is a killer.  Private insurance is available virtually anywhere in the world, and my friends could benefit from much lower premium rates if they choose to retire outside of the U.S.

An added bonus might be the $1.5 million they could bring into a foreign country.  Immigration officials look kindly upon people bringing either skills or money into their economy.  If Peter and Jane move to a country with socialized medicine, they may not have to worry about medical insurance premiums.

But what if they still don’t save much money?

Options abound… for the creative.

They could retire in a country where the cost of living is lower.  I’ve written some articles on retiring overseas that could serve as a guide.

I’ve titled them How To Retire Rich…Even If You’re Not…

Perhaps Peter and Jane will see that their options aren’t as dire as they think.

And at some point – because I think it would help them – I’m going to slip them a secret copy of my book.

If you would like a free copy of Millionaire Teacher, The Nine Rules of Wealth You Should Have Learned in School, “like” my Facebook page.  Periodically, I draw names from the “like” list and mail free books.

Live long and prosper!

 

 

 





Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I’m happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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8 Responses

  1. squasher55 says:

    Hey Andrew,

    Nice article….and aimed at a group of people who likely need help and guidance. One problem for those working in the USA ….recent political talk is making it very clear that Social Security cannot survive….so having that SS pension at 65 or 67 in this country is not a sure thing.

    Many Americans do believe this, as it seems the politicians really do not know what they are doing. In Canada, the same type of discussion existed back in the 70's, but I never did believe it,,,,and of course the Canadian gov't made sure it did not die.

    The bottom line is…if the Soc Security comes through…count it as a bonus. But do not rely on it. Save up that 1.5 million, and then an annuity of 90 K in retirement would feel very good…because you really earned it. Especially if you do it at age 60, or maybe even 55! The really smart people are retiring at age 50.

    • Hey Squasher,

      I wonder if Social Security is safer than an annuity. If the U.S. defaults on SS, there's no doubt that many people in the U.S. would actually starve. I know that politicians play with the threat of bouncing SS cheques, but if it ever happened, we would have people in boxcars again, looking for the Grapes of Wrath. If SS disappeared, those who had savings in the stock and bond markets would cash them all in at once. And how viable would those bonds and T-Bills be if the government could no longer guarantee its debts. The markets would crash, and most insurance companies, paying annuities, would go bankrupt. This is why I think Americans can count on SS. Nothing is a sure thing. But future (if not reduced) SS payments are, in my opinion, the surest financial promise Americans have.

  2. Cool post- I wonder if Peter and Jane read your blog?

    Did they disclose to you that they had $180K in savings? (IS that per person or between them as a couple?)

    Teaching overseas can be a great way to save money, it seems- but it is important to be saving!

    My friend is in China right now and she's making BC Teacher salaries and getting taxed very minimally (taxes to be paid in China). her cost of living is really low as well ($200 a month for an apartment, I think).

    • Hey Young,

      Yeah, Peter and Jane told me how much money they have, and its $180K combined.

      The risk of teaching overseas, of course, is the lack of a pension. I figure that if your friend could teach in a public B.C. school, and save nothing, then he or she would likely be ahead of someone saving $18,000 a year in China.

      It's a paradox.

      The teacher's pension in B.C. is an incredible thing. Somebody on a full teacher's pension can end up with a guaranteed income of $50,000 a year, indexed to inflation. Such a pension is worth well over a million dollars.

      Teaching overseas can be a great experience, but doing it for the financial benefits rarely works out, unless the person can save very aggressively.

      Most internationally teachers think they are doing better than their compatriates teaching in public schools back home, but most of them are wrong to think that.

  3. Jim Yih says:

    Congrats on the new book!

    Jim

  4. JM says:

    Congrats on your new book!

    Will it find its way to library?

    I would be more than happy to read it?

  5. Congratulations on your new book! I hope it finds its way to the library (not just your school's library!). And I also hope that Peter and Jane changes their mind and reads your book (and your blog, too!) to help them prepare for their retirement.

  6. Interesting read.

    I would vote for #2, but if folks in their 50s haven't learned some savings ropes yet, it's hard to change. That said, it's never too late to try, to learn, to improve. Words I try and live by.

    $110,000 annually, even at 3%, would be a very dedicated savings plan but not unrealistic.

    If SS stop flowing in the U.S., there would be riots bordering on a civil war. That said, the U.S. keeps spending the way they are over the next 20-30 years, a civil war, geez, who knows.

    I really hope the U.S. can get their spending under control. That, coupled with a VAT tax – soon!

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