The Hungarian Guide - Investing and retiring in Hungary

  • A stunning capital with unique setting A stunning capital with unique setting
  • walking and birdwatching paradise walking and birdwatching paradise
  • undisturbed nature rich in rare species undisturbed nature rich in rare species
  • enjoy the 144 mile lakeside cycle track enjoy the 144 mile lakeside cycle track
  • Teeming with History Teeming with History
  • over 300 Thermal Health Spas and warm lakes over 300 Thermal Health Spas and warm lakes
  • picturesque lakes with Carp weighing over 100 lb picturesque lakes with Carp weighing over 100 lb
  • Feast on delicious sunripened local fruit Feast on delicious sunripened local fruit
  • Lake Balaton gets as warm as the Caribbean in the summer Lake Balaton gets as warm as the Caribbean in the summer
  • Tranquil Lake Balaton Tranquil Lake Balaton
  • Lush rolling hills of western Hungary Lush rolling hills of western Hungary
  • buy a thatched cottage for under £30 000.. buy a thatched cottage for under £30 000..
  • horsemen and nature lovers paradise horsemen and nature lovers paradise
  • Europe's second largest freshwater lake Europe's second largest freshwater lake
  • A paradise for watersport enthusiasts A paradise for watersport enthusiasts
  • Tihany peninsula- a pearl of history and nature Tihany peninsula- a pearl of history and nature

What age can you afford to retire?

Disillusioned with life in the UK ?
The UK Government have announced fundamental changes to Pension rules for people aged 55 and above from April 2015. ( subject to legislation )
Full details have yet to be released but it would appear people with a private pension can for the first time un lock pension funds. Pension holders are no longer prevented from accessing their pension pot and accepting the ridiculously low annuity rates on offer.
From the age of 55 you can withdraw a maximum 25% of your pension pot tax free.
Further amounts can be withdrawn but this will be taxed at the persons marginal tax rate – 0%, then 20% 40% or 45% – much depending on what other taxable income a person receives
A recent report indicated that to enjoy a comfortable life in retirement in the UK each person needs a net income of £15,000 / annum. Ideally nearer to £20,000 to enjoy the finer things in life such as overseas holidays and meals out. Considering the average Council Tax bill in the UK ( Band D ) is £1,464 for 2014/15 and ever increasing heating costs, which tend to increase further when one retires, there is not much money left to enjoy life
Just like managing a business people need to consider not just their income but also their costs. Any cost savings go straight to the bottom line as profit or in the case of a personal budget, more cost savings mean a higher disposable income.
The cost of living across much of Western Europe and in particular the Euro Zone is very comparable to the UK. However, in Central Europe costs tend to be lower.

The cost of living of Hungary is considerably lower than the UK. Similarly the average gross income being just 25% of that of the UK ( £7,665 versus £29,900 ). Therefore the amount of money required to enjoy a comfortable life in Hungary is probably nearer £4,000 per annum – with typical Council Tax bills of less than £50 / annum and lower energy costs it is no wonder an increasing number of Brits are relocating over to Hungary disillusioned with life back home.

Lets consider an example against a backdrop of -

The new state pension to be introduced in April 2016 yields an income of £7,500 / annum – but what age do you retire 65, 66 or 67. Maybe 70 is around the corner ?

Pension income is still taxed. up to £10,000 – nil rate, next £31,865 at 20%

Annuity rates of 3.5% typically at aged 55 yrs and just 4.5% at aged 65 yrs

The average pension pot at the time of retirement is £36,800 ( Association of British Insurers ) – yielding approx. £100 / month – probably not enough to pay your Council Tax !!

Average property rental prices in the UK as of July 2014 of £694/ month £8328 / annum ( The Independent )

Retire early !

Assume a British man aged 55 yrs with a revised retirement age of 66 yrs

To remain in the UK and based on the above report he would need a gross income of nearly £20,000 to be comfortable.

To retire now he would need a pension pot of £580,000 to yield the £20,000

So assuming his pension pot is well short of this amount he carries on working ( reluctantly ) – he believes he has no choice

He would receive State Pension of £7,500 at 66 yrs but would still need extra income of £12,500 / annum to generate the £20,000 comfortable lifestyle threshold

(Probably more in reality – approx. £15,000 more as any income earned above £10,000 would be taxed at 20%.)

This would require a pension pot of £280,000 at 4.5% annuity rates to yield the £12,500 or £333,000 to yield £15,000 and then pay £3,000 Income Tax to yield £12,000 net

Assuming the combined state and private pension falls short of this £20,000 threshold he faces the prospect of having to continue to work well into his 70′s or until he is too old to enjoy life / spend money and so reduce his cost base accordingly. Alternatively he could retire at 66 years and enjoy a miserable retirement scrimping and saving living on the State Pension plus a small amount of private pension income.

Solution

At 55yrs take the 25% tax free pension drawdown and stop work

Combined with UK savings ( or a small personal Tesco loan at 4.4% ) buy a Hungarian property for £25,000 and live in Hungary

Rent out his UK property yielding £8328 / annum

Take an annuity from remaining cash in his UK pension pot – 3.5% yield

Invest any spare cash in a Hungarian bank and earn 3.5% interest

Live very comfortably in Hungary with no need to work

As necessary work part time in Hungary which generates enough spare cash to spend part of the winter months as a “snow bird ” in southern Europe / Canaries.

At the age of 66 yrs he would be entitled to a UK State Pension £7,500 per annum which improves living standards even further or enables UK property sell off to create a retirement nest egg.

There is an increasing number of retired people in the UK who are now seeking work to generate an income in order to achieve a comfortable life style.

A recent report by Wesleyan indicated 61% of people believe they will not have enough funds for retirement.

For both categories of people – those who are approaching retirement and those who have already retired the relaxation in pension rules in 2015 will bring welcome relief. They can at least access pension funds to help pay for the early years of retirement and stave off having to continue / return to work.

At the same time by dipping into the pension pot to fund the short term needs does not solve the fundamental problem – the income is not sufficient to fund the costs associated with a comfortable lifestyle.

We encourage people to consider the alternative and very nice Hungarian lifestyle – lovely weather, beautiful countryside, low crime, nice people, thermal spas, fantastic food and wine but at living costs a fraction of the UK.