When I met a group of Singapore-based teachers at United World College on Monday, I mentioned that if a teacher, without an upcoming pension, wanted to generate income of £40,000 a year as a retiree, then they’d likely need an investment portfolio amounting to roughly £1 million.
It’s widely accepted that a maximum withdrawal rate for investments is 4% per year, so selling 4% of a £1 million investment portfolio would provide £40,000 in “income.” And over time, this conservative withdrawal rate should allow the retiree to increase their income over time, as they allot for the increases in the cost of living.
But a question remains: what are international teachers giving up, financially, when they teach overseas?
Recently, in The Guardian, Phillip Inman suggests that the average UK based teacher will be a millionaire when they retire, thanks to their pensions:
“A teacher on £35,000 will qualify for a £17,000 a year pension with top-ups that can add another £3,000-£4,000 a year. A £20,000-a-year final salary pension with all the bells and whistles would cost between £700,000 and £800,000 to provide.”
Mr. Inman suggests that the teachers’ pension plan would have at least £700,000 “invested” to provide a “£20,000-a-year final salary pension with all the bells and whistles”
When we add in those bells and whistles (whatever they may be) you can see that his figures are very close to the 4% withdrawal rate that I mentioned for teachers without pensions.
If the bells and whistles he refers to have a currency value of £8000, then we’re looking at total compensation of £28,000, including benefits, which is exactly 4% of £700,000. When coupled with a mortgage-free home, it will make the average UK-based teacher, technically, a millionaire. And if we start considering UK-based teaching couples, you can double that figure.
Expatriate teachers need to look at income generators to replace this cash flow: rental property income and/or a large retirement portfolio.
No doubt, many expatriate teachers can easily exceed the financial assets (upon retirement) of the average UK, Canadian, Australian or U.S. based teacher—even when including the generous pensions they’ll be missing.
But to do so, they’ll have to plan. It won’t happen by accident.