Retiring from TEFL
Retiring from TEFL is a rarely talked about topic, but a very important one, especially for those who get into TEFL at a younger age. The problem for you will be that you won’t have accrued either a state pension or much of a workplace pension and therefore face the risk of not being able to retire at all.
What’s more, TEFL is not a particularly high paying career and so saving for retirement is perhaps more tricky since you don’t have the same income to save as much as your friends back home who are now holding down much higher paying jobs.
The good news however is that because TEFL salaries often do permit saving a fair amount of your wages if you live like a local, there is a lot of potential to save and still make a comfortable retirement a possibility.
F.I.R.E.
An alternative view of retirement is not to see it as getting old and no longer able to work, but to see retirement as freedom to choose what work you do. Retirement is not necessarily stopping working, but reaching a tipping point at which your investments mean you no longer have to worry about money.
This is the view of many people who subscribe to the idea of FIRE (financial independence retire early). The idea is that if you can amass enough wealth to last 25 years, if you follow the 4% rule (to not spend more than 4% of it), then that money shouldn’t run out.
To get to this point, FIRE aspirees do a few things:
- Work hard and earn as much as possible;
- Keep their expenses down;
- Aim to spend as little as possible once retired;
- Know what their target sum is.
It might be possible to retire in some countries on £10,000 a year. In this case having £250,000 would be the target, so that 1/25 or 4% is £10,000.
If you were able to save 50% of a £20,000 salary, this would therefore take 25 years to save. If you entered TEFL at 23, that would mean you could exit at 48. Not the earliest retirement, but earlier than many.
However, that is not considering the possibility of saving in a fund with growth being compounded. If you saved £10,000 a year for 25 years with growth of 5%, you would have over £500k. You would in fact reach the goal of £250k within 17 years and could therefore retire at 40!
Is that actually feasible though? To save over £830 a month on a TEFL salary? Well, it is certainly extreme, but I did personally achieve more than this while working in the middle east, and was not too far behind this in China.
And even if you took it more slowly, putting away half this amount (£5,000 per year) for 30 years would still get you to almost £350k. Or you could potentially bow out after 25 years to get to £250k.
Generally however many people consider FIRE to be too extreme to consider as a serious means of retirement. As you can probably imagine, people aspiring to early retirement may be making sacrifices in areas from their enjoyment to their welfare.
A More Reasonable Retirement
Presumably you don’t want to starve yourself of any enjoyment now in order to achieve a retirement where you starve yourself of entertainment too. If you want a retirement you can enjoy, you need to start by looking at how much you need. This will depend on at least three factors:
- Where you will retire;
- If you will be single or a couple;
- What kind of lifestyle you expect.
| Single | Couple | |
|---|---|---|
|
Minimal |
£10,900 |
£16,700 |
|
Moderate |
£20,800 |
£30,600 |
|
Comfortable |
£33,600 |
£49,700 |
Clearly, there is a benefit to being in a couple. You will be able to share certain costs and that will also help both of your income to go further. If you are already in a long-term relationship or marriage, you may well plan your retirement together. However, it may be worth working out your individual position because you never know what may happen.
I wouldn’t recommend to aim for the minimal level either. If you shoot for a moderate retirement but miss it slightly, you should still exceed the minimal retirement by some margin.
Pensions
This is the standard way that people tend to retire. They stop working and draw on a pension. There are different types and this post is not intended to be by any means exhaustive or constitute individual advice on such products.
State Pension from Your Home Country
Depending on where you are from, you may be entitled to a pension from your government. The problem for most TEFL teachers though is that you will not be eligible if you are not working in your country.
In the UK, it comes down to National Insurance (NI) contributions. If you have a National Insurance number, you can check the amount of NI contributions you have made here. To get a full UK state pension, you typically need 25 years of contributions. You will not get anything for less than 10 years. These rules do change from time to time.
It is worth checking how many years you have. I was surprised to learn I have 11 from when I was aged 16 to 27, when for much of that period I only worked a few part time jobs.
If you do not have enough qualifying years, it is possible to top them up. This costs in the region of £800 a year. In my opinion, this is not unreasonable. The current monthly payout is about the same, and this is guaranteed to increase by 2.5% every year.
Since you are usually only able to pay for the past six years, always top up earlier years first.
You can also defer taking your state pension. Deferring by one year increases the weekly payment by 5.8%. If you are eligible for the full amount, that is equivalent to an additional £10.70 per week (at the time of writing).
State Pension from Another Country
Potentially, you may acquire the right to a state pension from another country. This may depend on how long you work there and how much you pay in local taxes. This is an area that you may need to seek specialist advice in order to claim any pension you may have in that country. In many cases however, you will not acquire such a right unless you have acquired citizenship.
Workplace Pensions
Few TEFL employers provide any kind of pension. However, one that do are the British Council (this may not be in all teaching centres). In some cases this may be instead of a terminal gratuity (a payment at the end of your employment based on the length of your service).
Typically, these pensions work by you paying 3 or 4 per cent of your salary into a pension scheme and your employer matches this same amount. As your salary will typically go up each year, the amount of payments into your pension will also increase.
The pension scheme will invest your money into a number of funds which will hopefully increase in value over time. You may get an option of how aggressive you want to be in terms of risk level. Commonly, pension schemes start out more aggressive when you are younger and become more cautious as you near retirement.
You may have the option to pay in more than 3 or 4 per cent, but your employer will only match your contributions up to this level.
You can have multiple workplace pensions, although it is worth talking to a financial advisor about whether to combine these into one or keep them separate. On the one hand having one sizeable pension pot may see faster gains, but having multiple pensions may be benficial in spreading risk.
If you work in the UK, you will likely be offered the chance to join a workplace pension scheme.
Private Pensions
Your final pension option which can be used in conjunction with both a state and workplace pension, is to have your own private pension. This works just like a workplace pension except that only you are paying into the plan.
If you do not work in your home country for any part of your career, this is likely to be your only option pension-wise.
Of course you will want to choose a provider you can trust, and you may need to consider the options available to fund the pension. If you are able to fund the pension from the country that you work in, this would likely be preferable. If not, are you able to get the money into an account or payment mechanism that allows you to fund your pension.
Other Options
Although pensions are typically the way that people retire, they are not your only option. What you really need to retire is income and these days it is very fashionable to talk about passive income.
The first thing to say about passive income of course is that it is a misnomer. Passive income is far from passive. It requires a lot of effort or capital to establish and maintain. However, the rewards can far outweigh what people make in employment.
There are many ways you could make a passive income that will persist in your retirement. One of the common ways is through property.
Rental Income
Buying a house in your home country is a very worthwhile goal. If you don’t plan to retire in your home country, you have a rental property. If your plans fail, you have somewhere to live. Not to mention that property is an asset that tends to appreciate (i.e. go up in value).
Of course, if you manage to buy a property before you retire, the profit you make on rental income could be invested into a pension. Notice that I say profit. Rental income will come with related expenditure such as taxes, utilities, repairs and other costs. Once you retire, the profit becomes part of your retirement income.
To buy a property, you will of course need to save up at least enough for a deposit. There are a number of lenders who specialise in ex pat mortgages and can advise on this process.
A consideration you will need to have is how you will make the mortgage payments. In many countries this may not be a problem. However, some countries may present more problem in repatriating money. Even in a country where it is easy to do so, geopolitics can change very rapidly. To avoid finding yourself in a situation where you can’t pay your mortgage, you may want to ensure you have 6 mortgage payments in a savings account at any time. This should give you ample time to make other arrangements if you suddenly encounter difficulties.
Other Side Hustles
Many people nowadays have at least one side-hustle. For an English teacher, common side hustles include:
- writing books, blogs or other published materials;
- proof reading or editing;
- translation and interpreting;
- examining or exam question writing;
- teacher training;
- teaching english via social media channels;
- writing materials.
All of these examples are related to language and teaching. However, there is certainly something to be said about doing something unconnected with your main job. This could be:
- photography;
- conducting tours or excursions;
- making deliveries;
- medical trials;
- being an extra;
- modelling;
- voice acting.
As with rental income, your side hustle can do two things for your retirement plan:
- Provide income before you retire that can be invested.
- Provide regular income after you retire.
Barista Retirement
A barista retirement is one where you switch to part time work, rather than retiring completely. This may be because you wish to retain rights such as medical care in the US. In this case, the income from continuing working will be part of your retirement income.
Working It All Out
To calculate whether you will be able to retire, follow the steps below.
Step 1: Calculate How Much You Need
As discussed earlier in this post, the amount you will need depends on where you will live, whether you will retire single or in a couple and what kind of lifestyle you want. For the purpose of this guide, I will use my own target of £918,000.
This number is arrived at by calculating the recommended level of income for a moderate retirement in the UK and multiplying it by 30 years.
Step 2: Calculate the Value of Pensions
State Pensions
Under the current rules, I do qualify for a UK state pension as I have over 10 years of National Insurance contributions in the UK. However, I don’t qualify for the full amount. I am therefore planning to pay for some years that I didn’t make NI contributions. If I qualify for the full UK pension, I would therefore get:
- £185.15 per week
- £9627.80 per year
- £288,834 over 30 years
This amount can therefore be deducted from my goal of £918,000, giving £629,166 left to find.
If my partner also qualified for a UK state pension, I could also deduct her pension from this figure. She is not a UK national and has never worked in the UK so presently, she doesn’t. She will likely qualify for a pension from her own country, although I know that is negligible, so I am not counting it.
Workplace Pensions
I did start a workplace pension over a decade ago, but only paid into it for 4 months. I don’t know my current position, but it was only promising me £2 a week or thereabout when I last looked.
That makes £2 x 52 weeks x 30 years = £3120.
I’m not going to count this for the moment, but it’s not bad considering I only put £120 of my own money in!
If you have such a pension, they should provide a yearly update on your likely payout. Calculate the amount they will pay over 30 years and deduct it from your goal.
Private Pension
I don’t presently have such a pension, though I plan to start one in order to address the shortfall in my own plan.
As with a workplace pension, the provider should send annual updates about how your plan is doing. They will report on your likely retirement income under the plan.
You can use the same formulae as above to calculate the 30 year value and deduct this from your goal.
Step 3: Deduct Passive Income
If you have passive income that you can assume you will continue to make in your retirement, you can deduct this too.
To calculate this you need to work out what you make per week or month and then calculate the 30 year sum to deduct from your goal.
I hope to make around £400 per month from passive sources in my retirement. This is £400 x 12 months x 30 years = £144,000.
Deducting this from my goal, I have £485,166 left to find.
Step 4: Find the Remainder
So, I know I still need almost half a million to retire. I am 36 now and I want to retire in 30 years. If I just tried to save the remainder, I would need to save:
485,166/30 = £16,172.20 per year.
As I mentioned before, however, this ignores the compounding of growth when investing.
Instead what I need to do is put my money into a private pension or funds that will return a decent rate.
The following table shows how much you can expect to have if you invest the monthly figure (growing by 2% each year) and earn 5% growth p.a. (a modest figure).
| 5 | 10 | 15 | 20 | 25 | 30 | 35 | |
|---|---|---|---|---|---|---|---|
|
£50 |
£3,537 |
£8,420
|
£15,058
|
£23,979
|
£35,860
|
£51,572
|
£72,230 |
|
£100 |
£7,075 |
£16,839 |
£30,116 |
£47,958 |
£71,720 |
£103,141 |
£144,452 |
|
£150 |
£10,612 |
£25,260 |
£45,176 |
£71,941 |
£107,587 |
£154,724 |
£216,696 |
|
£200 |
£14,149 |
£33,680 |
£60,232 |
£95,914 |
£143,437 |
£206,277 |
£288,893 |
|
£250 |
£17,686 |
£42,100 |
£75,292 |
£119,898 |
£179,305 |
£257,860 |
£361,138 |
|
£300 |
£21,224 |
£50,520 |
£90,348 |
£143,874 |
£215,161 |
£309,425 |
£433,358 |
|
£350 |
£24,761 |
£58,940 |
£105,408 |
£167,855 |
£251,025 |
£361,002 |
£505,591 |
|
£400 |
£28,298 |
£67,360 |
£120,465 |
£191,834 |
£286,884 |
£412,573 |
£577,820 |
As I stated above, I need over £485,000 more to think about retiring from TEFL and I have 30 years. You’ll notice that even the amount of £400 per month, does not meet this amount.
Does that mean I would have to delay my retirement or save more? Well, actually, that would be forgetting one crucial fact. I am planning a retirement for me and my wife. Since she also works, we can pick two numbers from this graph that add up to our goal.
In my view, it is better to do it this way than both invest in the same pot, because again it spreads risk but also it protects us both if our relationship breaks down. Of course, I don’t want it to, but always plan for the worst and hope for the best.
So, if my wife and I both started saving £250 per month in private pensions, we could be looking at over £514,000 in 30 years which clearly covers the amount we need to retire. We may even achieve retirement a year or two earlier, when I am 64.
My wife is younger than me however, so we could actually factor in for my wife to save for longer. If I save £200 per month for 30 years, and she saves £200 per month for 35 years, we would still have over £495,000 towards our total goal.
£200 a month should not be that difficult for a TEFL teacher to find.
Step 5: Change Your Plans
If you can’t find the remainder, your only option is to change your retirement plans. You will likely need to shift your goal down by planning to live somewhere cheaper, spending less in retirement on holidays and other luxuries or planning to work for longer.
Even if you can’t currently plan the retirement you want now, it is worth putting away what you can for retirement. As you can see from the table above, the longer you are able to put away this money the better it performs. Even if you can only do £50 a month at the moment, this will build up and you can switch to £200 or more when you are better placed to.
Retirement Coaching
Does retiring from TEFL still seem impossible to get your head around? Do you need to talk through your options with someone? You could try my Retire from TEFL coaching package. Click here for more details.
