7 Financial Tips You Should Know
Congratulations! You have recently accepted a job overseas and are preparing for life as a U.S. expat. As wealth managers who specialize in helping clients navigate the complexities of international investing and financial planning, we understand that preparing to move to a different country can be both exciting and overwhelming.
Fortunately, there are some tips that can help facilitate a smooth transition to your new life as an American abroad.
#1 – Determine how long you’ll be living abroad.
The length of time you plan on spending overseas can impact your financial strategy, so it’s helpful to have an idea of about how long you plan to live abroad before you leave. For example, if you plan to live overseas for many years, it may make sense to reallocate your investment portfolio to invest more heavily in your new country’s currency. It may also make sense to end your state residency in order to avoid paying state income tax. If you intend to remain abroad, you’ll want a financial plan optimized for your country of residence, particularly for tax and retirement planning.
On the other hand, if you only plan on living abroad for a short period of time, it may make more sense to make small adjustments to your financial strategies so that you can more easily transition back to life in the United States.
#2 – Research the cost of living.
It’s important to understand how life in a different country may impact your long-term finances. Will you be able to afford a comparable lifestyle while living abroad, or will you need to make sacrifices for the sake of your financial health?
Take some time to research the cost of housing, medical expenses, food, entertainment, transportation and other expenses. This information can help you set a realistic budget and avoid getting in over your head from a financial perspective.
#3 – Understand your banking and investing options.
Before moving overseas, make sure your bank and investment accounts will still work with a non-U.S address. Contact your financial institutions to notify them of your upcoming move and ensure you can continue using your existing accounts as a U.S. expat living and working overseas. Many brokerage firms will permanently close your accounts if they find out you’re living overseas, so it’s best to find a custodian that’s friendly to U.S. expats prior to leaving the country.
Ask your employer for help establishing a local bank account in your new country of residence. You’ll want to maintain this account in local currency in order to pay for your living expenses while overseas. Prior to leaving the United States, consider transferring several months of living expenses to your overseas account as an emergency fund to cover unexpected expenses.
You’ll also want to notify your credit card companies that you’ll be living and spending money in a different country to help ensure your cards continue to operate as intended.
#4 – Research your retirement savings and benefit options.
Start by confirming with your employer that your company-sponsored retirement plan is covered by U.S. tax treaties. This is an important step because you don’t want to inadvertently invest in foreign mutual funds unless you’re covered by a tax treaty.
If you have access to a new employer-sponsored plan, be sure to enroll as early as possible so that you don’t miss out on any potential matching contributions.
Understand what medical insurance is available to you. Are you eligible for government-sponsored healthcare coverage? If so, how do you enroll? If not, you may need to research and enroll in private healthcare coverage.
Consider whether your employment benefits include life and disability insurance, and determine whether that coverage is sufficient (in light of any other coverage you may have).
#5 – Understand your tax liabilities.
Prior to moving overseas, it’s important to understand whether non-local income, such as U.S.-sourced investments, will be taxed in your new country. It’s also vital to understand the details of any tax treaties between your new country of residence and the United States. Certain treaties can significantly reduce or eliminate your U.S. or foreign tax liabilities.
Be aware that just because you’re not living in the United States doesn’t mean you don’t need to file a U.S. tax return. The United States’ tax system is based on citizenship, not residency, which means all U.S. citizens must file an annual return and report global assets and income, even if you don’t owe anything to the United States.
#6 – Review your estate plan.
Estate and inheritance laws in your current country of residence may mean your U.S. estate plan doesn’t hold up well once you move abroad. Be sure to review your estate plan with an experienced international wealth manager and estate planning attorney to make any necessary adjustments prior to moving abroad, and consider whether to gift or restructure assets before your move. Your wealth manager can also offer guidance on how to handle inheritance laws in your new country of residence.
#7 – Work with a qualified team of advisors.
One of the best ways to prepare for an upcoming international move is to start working with an experienced team of U.S. expat advisors. Advisors outside the United States seldom have the knowledge and experience necessary to navigate the complexities of the U.S. tax system. Likewise, U.S. advisors who have never worked with Americans living abroad likely don’t have experience navigating various international accounts and tax treaties.
That’s why it’s important to put together a team of experienced advisors who understand the specific challenges you face as a United States citizen living and working abroad. At a minimum, your team should include a fiduciary wealth manager and an experienced tax accountant.
Feeling overwhelmed? We can help. At Creative Planning International, we work with Americans living abroad and cross-border families to help them maximize their wealth and avoid costly mistakes. We understand the complex interaction of multi-jurisdiction tax and regulatory regimes and take into account currency, diversification, tax and other portfolio considerations as we help clients plan and invest for the future.
If you’re an American preparing to move abroad who could use some help establishing a solid financial plan, connect with a member of our team.
