Why You Need a Financial Plan in Thailand

 

It’s no secret that you don’t want to rely on the Thai government to support you when you retire. On the surface, Thai social security sounds wonderful – contribute a mandatory 5% of your salary which is matched by your employer and receive the following benefits:

  • Medical care
  • Maternity leave
  • Disability benefit
  • Death benefit
  • Child allowance
  • Old-age pension
  • Unemployment insurance

So, what’s the catch?

Unfortunately, the maximum monthly salary that can be used for the calculation is only 15,000B (475 USD). That explains why most of us pay 750B (25 USD) per month or 9,000B (290 USD) per year in social security (15,000B x 5% = 9,000B).

To be eligible to receive the old-age pension, you have to make continuous contributions for 15 years or 180 months and be at least 55 years old. 

If you do qualify, the old-age pension benefit is capped at 20% of your average salary for the past five years, which gives a maximum of only 3,000B (95 USD) per month!  (15,000B x 20%)

Yes, that’s the maximum benefit! 

I’ve never even heard of Cheap-Charlies living off 3,000B per month!

Thai social security is good for one thing though. The medical insurance part is worthwhile if you don’t mind going to government hospitals and waiting all day for even minor issues. 

Many people think government pension plans in Western countries are more like Ponzi schemes and are unsustainable at current levels. With retirement ages now close to 70 years old, who knows how much will actually be available when the current working generation finally reaches retirement and if they will be healthy enough to enjoy it. 

My grandma received about $1,500 every month for 35 years from the government – that doesn’t sound sustainable to me. It’s wishful thinking the government can fund more than 30 years of retirement for each person by taking a few percent from each paycheck, especially when the baby-boomers retire. What is the retirement age going to be in another 30 years?

Corporate and state pensions in the West are quickly becoming a thing of the past. Many people contributed for decades to their pensions in anticipation of a comfortable lifestyle when they retired only to find their monthly benefits slashed due to union contract negotiations (yes, negotiations can retro-actively affect pensions), mergers, mismanagement, and cutbacks.

So, even if you plan on having a Western pension, it’s still prudent to have your own financial plan.

Reasons to Have a Financial Plan

It’s been shown that people who have a financial plan have more money saved than people who don’t. They are also more ambitious with their financial goals and more likely to meet them. Just knowing what your goals are and what you need to do to reach them can relieve a lot of stress and uncertainty.

Here are some of the reasons you need a financial plan:

  • Pay off debt
  • Create an emergency fund
  • Save for a house/condo
  • Save for children’s school/university
  • Save for retirement
  • Save for future healthcare

It’s best to start investing as early in your life as possible to take advantage of compound interest and returns. You will have a lot more money at the end if you invest a small amount every month for 30 years, rather than trying to catch up by investing a large amount for only 10 years. 

Let’s take a look at two expats in Thailand who didn’t have a financial plan – Hector and Harold. Their stories are fictional, but unfortunately, also common.

Hector

Hector came to Thailand in his twenties because he wanted to get away from the rat race and life in his home country.  He enrolled in a TEFL course and quickly found a job for 35,000B (1,100 USD) per month after graduating. The job was tiring but he enjoyed it. He made enough to survive as well as have a few extras in life. 

Over the years he jumped from job to job, agency to agency, government school to language school to university, but never made more than 40,000B (1,275 USD) per month.

He occasionally thought about retirement, but he knew he would get an inheritance when his parents died so he wasn’t too concerned. He didn’t need to get properly qualified to make more money in an international school. Also, he could always go to the Middle East for a few years if he really needed to save money.  

Although he enjoyed his single lifestyle, he eventually met a lovely Thai girl, got married, and had a kid. After having a kid, there was never any money left at the end of the month even though his wife also worked.

Hector started getting nervous as he approached 60 years old because of rumors he would have to leave his government university job that he had been at for the past 10 years. The Thai government requires all teachers and civil service employees to retire at the age of 60.  He hoped the rule didn’t apply to him or they wouldn’t realize how old he was. 

Sure enough, even though he was healthy and still needed to work, he was forced to leave his job at the end of the year when he turned 60.  He tried looking for work in private language schools since they don’t have the forced retirement rule, but no one wanted a 60-year-old to teach children. The only jobs he could find were over an hour and a half away on the outskirts of the city for 250B (8 USD) per hour that no one else wanted.

Luckily, his younger wife was still working, but they needed money to pay for high school for his son. Hector asked his parents back home for money, but he didn’t realize how expensive their nursing home was (his parents would eventually live to be in their 90’s and would deplete his inheritance paying for healthcare).

He looked seriously at the Middle East, only to find the easy to get, high paying jobs are more internet rumor than anything, and no one there wanted someone at his age with almost no qualifications.

Hector’s son had to change schools in Grade 11 to a cheaper government high school and his entire family had to live on less than 15,000B per month in Bangkok.

Harold

Harold landed his dream job when his company posted him to Thailand on a full expat package.

Making well over 400,000B (12,800 USD) per month, he enjoyed everything Thailand has to offer – weekend trips to the beaches, car with driver, 5-star meals, and luxury accommodation.  He found himself supporting multiple families in Isaan, but he didn’t mind because he could afford it.

When his original contract was up, he loved Thailand so much he decided to stay even though his benefits were reduced.

Harold lived the high-life for decades not worrying about money or how much he was spending.

Eventually, his lifestyle caught up with him and his health started deteriorating. His life flashed before him when one of the best cardiac doctors at Bumrungrad Hospital advised him to take time off work, start exercising, and change his diet. He had barely any savings and no backup plan if he suddenly couldn’t work.  Early retirement was out of the question.

The reality of life in Thailand had hit him.  

Don’t end up like Hector or Harold. No matter what your salary is or how long you originally plan to stay in Thailand, make sure you have a financial plan from the very beginning!

Click here to find out why the tax system in Thailand is the best in the world for FIRE.

 

References

Thai Social Security

U.S. Pensions Suffer from Unrealistic Expectations and Mismanagement

State Pension Funding Hits Record Shortfall

How Bad is America’s Pension Funding Problem?

1.5 Million Retirees Await Congressional Fix for a Pension Time Bomb

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