Finance in France: Safeguard your retirement

Looking after your savings becomes even more important when you retire, whether you remain in the UK or move to France. For working people, a salary gives security, usually more than a pension does, but retirees need to know that their nest egg will support them for the rest of their lives and allow them to maintain their standard of living.

If you retire to France, this issue becomes even more imperative.You may have a better standard of living and lead a more carefree life than you previously did, but life will become stressful if you run out of money in a foreign land. France will seem a much less friendly place if you have not made adequate financial provision for your long-term future and that of your spouse. One of the problems with planning for retirement is that you don’t know how many years you have to live in retirement. The average person will live for 20 years, but you could enjoy 30 years or more.

Taking a positive perspective first, you are likely to find that your choice of living in an improved climate and, in many cases, with a healthier and relaxed lifestyle, will extend your life expectancy and state of health. The cost of living is often also more favourable and your income may go further than you had expected.

However, you can’t predict to what extent your wealth, and the income derived from it, may need to be utilised for additional costs in later age: healthcare, residential and nursing care and costs.You may also be forced to make costly home improvements, especially if your French property is quite old.

It is for these unforeseen occurrences and, understandably cautious, reasons that some people suggest keeping their money in the bank as the ‘safe option’. How wrong! While on the surface this seems to make sense, it is actually shortsighted. In spite of being so keen to protect their money, they fail to consider other risks that exist, which can erode their money.

The key concern for most retired expatriates is that dreaded four letter word: risk, or the ‘R word’ as many call it! The word risk is commonly associated with price decline or volatility, i.e. risk to your capital. Most people fail to consider the risk to their purchasing power. You should evaluate all types of risk before deciding what to do with your savings.

• CAPITAL RISK: The degree of probability that your original investment will decline in value.

• LIQUIDITY RISK: The possibility you won’t be able to sell or convert a security (particularly property) into cash when you need the money or you may need to sell at a loss.

• TAX AND INTEREST RATE RISKS: Tax rates can increase and interest rates can fall; both of these will affect any returns you make on a deposit account.

• CURRENCY RISK: The possibility of loss by not weighting your investments to counter unavoidable movements in exchange rates. It is common for British expats to keep a large proportion of their assets in sterling. However, currency markets can be more volatile than people realise. If you need to convert sterling to euros at a time when sterling is weak you will get less for your money.

• MARKET RISK: One common investing risk is the up and down movement in the value of an investment – its volatility. Your first instinct may be to choose the investment with minimal short-term ups and downs. Unfortunately it’s not that simple because of inflation risk.

• INFLATION RISK: The chance your money will decline in value as rising prices shrink the value of the currencies you are invested in. There is almost always, over the longer term, more risk to holding money in a bank account then to investing in other assets. Over the long term, inflation can eat up much of the growth of socalled ‘low-risk’ investments, particularly deposit accounts.

Time and inflation Time is an important issue here. The longer you keep cash on deposit, the more it will be eroded by inflation. Over a 10- year period you could see the value of your capital fall by as much as 30%-40%.With a carefully diversified and well planned financial strategy for the longer term, you are in a position to accept investment risk in return for high returns.

Anyone living in France needs to keep an eye on inflation in France, the wider Eurozone arena and also in the UK, in case they move back in the future. The costs we face usually increase by higher amounts than the official inflation rate. Health insurance, for example, can rise by 10% a year.

Most investments involve some form of risk. It is important to understand the different types of risks and ensure you invest at a degree of risk you can tolerate. You can strike a balance between risk and return through a welldiversified portfolio.

Diversification – spreading your money among many different investments – is a widely accepted method of minimising investment risks, and the returns generated should, over the longer term, easily out pace inflation and, more importantly, bank or building society deposits in both France and UK.

Over the years, I have met a number of expats who left the UK years ago to retire in France. When they arrived they thought they had plenty of money and thoroughly enjoyed their new lifestyle. This continued for many years, but as time went on – 10 to 20 years down the line – they had to tighten their belts and eventually sell their French home and either return to the UK or downsize to a smaller property. All because they failed to take inflation and other threats into account.

All this can be avoided if you plan ahead for your retirement and/or move to France. Sort out your finances today and then you can sit back and enjoy your well deserved retirement, whether it is in the UK or France – today and into the future!

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