Expat Retirement Planning

As you get older, planning for your eventual retirement not only becomes necessary, but it also can create a lot of headaches and complications. This problem gets even worse for expats who plan to retire abroad. If you fall into this ‘category’ you can probably identify with this scenario that Kristi Essick lays out at the WSJ:

“I have no idea where my retirement money is, or even how much I have, and I don’t even know how to go about finding it,” said Kartik Krishnaswamy, a consultant at Candesic Ltd. in London who has worked in India, the U.S., Switzerland and France.

Most people work in one country all their lives, saving for retirement by paying state social security and contributing to company-sponsored pension plans. They also may take out private retirement accounts and invest in stocks, bonds and property. Income from these investments is taxed according to familiar tax regulations.

Expatriates wish they had it so easy.

International professionals often pay into three or four social-security systems and contribute to a hodgepodge of company pensions. By spending only a few years in each country, some of their retirement plans never even reach maturity, causing contributions to vanish into thin air…see full article.

While it’s a good first step to realistically face some of the difficulties of retirement abroad, it really isn’t going to help much in terms of getting your situation squared away. You’ll need to take some proactive steps in solving some of the unique issues faced by expats. You’ll want to learn as much as you can about your host country and home country systems when looking at options for state-based pensions, employer-based options and offshore possibilities. Here’s an interesting thread at Metafilter on the frustrations you are likely facing:

I am a 29 year old American expat, living and working abroad in BRICs for nearly 6 years now, who needs help in getting my financial act together. Due to limitations of my company- I have not been able to contribute to a 401(k) for at least five years now, and in the last few years my salary has exceeded $135k/year, so I can’t even contribute to a Roth IRA. As far as I can understand, there isn’t really anything more in the basic United States system for retirement that I can take advantage of… so now what? Am I really on my own now? Are there any websites with info geared towards this? Or should I get a financial/wealth planner? Or an “expat” tax accountant? Or both? How do I even start to find one? I have no idea what to look for!

In the past two years, I’ve started to be able to enjoy spending money rather than being stressed out over it- vacationing in Four Season hotel suites, upgrading from $60 H&M winter coats to $1000 quality long-lasting luxury branded ones- but I am still obsessed with saving. Even with that, after taxes, expenses, and fun money, I save around $80k per year. My dream goal, whether it is relevant or not, is to be able to retire by age 55. But that’s a flexible, not firm goal. Also, at some point within the next 5 years, to be able to put a downpayment on a $1 million house or apartment.

Basically, I don’t have a network of other American expats living abroad, so have been limited to searching for advise and help to the internet. The websites I have been looking at have very generic information (www.20sfinances.com, www.getrichslowly.com). Does this mean I have to bite the bullet and hire someone or a company rather than trying to manage myself blindly?…

Because of these unique “problems”, you may want to break down the issue into a series of small steps that you can take to move you on the right path. Investopedia offers some great tips in this article on personal finance abroad:

When you move to another country, you become a foreign national, subject to legal regulations for non-citizens. There are U.S. tax ramifications, as well – and that’s before you factor in all the other issues that arise when you live abroad. Whether you want to retire across the border or across the ocean, here are steps you can take to ensure a smooth transition with the fewest possible unpleasant surprises.

  1. Check Visa and Residency Requirements
  2. Research Safety and Political Stability
  3. Determine Rules of Foreign Ownership
  4. Visit Before Moving, Rent Before Buying
  5. Consider an All-Cash Purchase
  6. Organize Your Assets (and Taxes)
  7. Settle Your Healthcare
  8. Get a Driver’s License
  9. Think About Working During Retirement
  10. Plan to Stay Connected…read the full article here

Despite some of these extra demands and requirements you’ll have foisted upon you, it’s important to remember the positive reasons you’ve decided to retire abroad in the first place. Keep a positive attitude and get started on your new adventure!