4 Keys to Retirement Success as a U.S. Expat

Achieving your retirement goals as an American living abroad requires a thoughtful, coordinated plan that reflects the realities of retirement planning for U.S. expats. A strong strategy can help you navigate legal and investment challenges while aligning your life overseas with your long-term retirement goals.

Following are four keys to success as you plan for your retirement as a U.S. expat.

#1 – Take a Comprehensive Approach to Financial Planning

A great way to support retirement planning for Americans abroad is to establish a comprehensive financial plan that accounts for your cross-border reality. As a U.S expat, you face unique investment, tax and estate planning considerations that can all impact your chance of retirement success, which is why it’s important to have a plan that clearly lays out how financial complexities are being addressed across multiple jurisdictions.

In addition to the traditional components of a U.S.-based financial plan (investment management, retirement planning, tax planning, estate planning, charitable giving, education planning, etc.), your international financial plan should establish strategies to help you navigate:

• Cross-border investment management
• International tax planning and ongoing tax compliance
• Estate planning complexities in multiple countries
• Real estate ownership and residency requirements

If you already have retirement accounts, such as 401(k)s, traditional IRAs or Roth IRAs, your plan should also address how and when you’ll draw retirement income from these accounts and how those withdrawals will be taxed once you’re living abroad.

#2 – Understand How Taxes May Impact Your Retirement

As a U.S. expat living abroad, you must still file a U.S. tax return, and you’ll also be subject to taxes in your current jurisdiction. It’s vital to understand how these combined tax obligations could impact your retirement income and reduce the potential for double taxation through careful tax planning.

Working with a qualified international tax advisor, consider the following steps as part of your expat tax strategy.

Understand any existing tax treaties

Tax treaties are agreements between the United States and foreign countries that help coordinate taxation on income that may occur in both countries. The United States has tax treaties with more than 60 countries, and understanding how your treaty treats pensions, retirement accounts and Social Security benefits is critical for retirement planning.

For example, if you’re a retiree living abroad, it’s very important to understand how your current country of residence taxes distributions from your 401(k), your Roth accounts, your pension plans and Social Security. Work with a qualified tax advisor to help ensure you’re minimizing your tax exposure based on the provisions of the applicable tax treaty.

Evaluate your eligibility for the foreign earned income exclusion

The foreign earned income exclusion (FEIE) is an income tax exclusion for U.S. citizens who live and work in foreign countries. The exclusion applies only to foreign earned income, not passive income from investments, rental sources, annuities or pensions. If you continue to work while living abroad, you may be eligible for the exclusion, which can influence how you structure the timing of your retirement income.

Apply foreign tax credits where appropriate

As a U.S. citizen, you may be eligible for the foreign tax credit on certain foreign-sourced income. The foreign tax credit can help reduce the risk of double taxation, but it comes with rules that interact with the FEIE. For example, you can’t use credits for income excluded using the FEIE, and switching between the FEIE and the foreign tax credit requires careful planning.

Your international wealth advisor can offer guidance to help you coordinate your tax planning and retirement planning strategies so that you’re not inadvertently overpaying taxes in either jurisdiction.

#3 – Put a Cross-Border Estate Plan in Place

Your U.S.-based estate plan may not operate as intended in your new country of residence, which is why it’s important to review and revise your estate planning strategies before moving overseas or as soon as your situation changes.

Last will and testament

The provisions of your U.S.-based will may not be recognized by your new jurisdiction, which means you may need to create a “situs” will to govern the distribution of any property or assets you hold overseas. The situs will should be designed to work alongside your primary will so that all your assets — in the United States and abroad — are covered without conflict.

In certain circumstances, it may make more sense to implement a multi-jurisdictional will that covers assets held in multiple countries. An experienced international estate planning attorney can help you establish a will that is recognized by all relevant jurisdictions and supports your broader retirement and legacy goals.

Trusts

U.S.-based trusts seldom operate as intended once the tax and probate laws of another country come into play. If you currently rely on trusts to govern the distribution of assets or support beneficiaries, be sure to seek the guidance of an estate planning attorney with experience navigating the laws of your current country of residence and the United States. You may need to revise or supplement your trust structure to avoid unintended tax implications or administrative issues.

Estate and inheritance taxes

The United States doesn’t impose an inheritance tax, and the current federal estate tax exemption amount is high ($15 million for individuals and $30 million for married couples filing jointly), which means many Americans can avoid U.S. estate tax on inherited assets. However, many foreign countries impose high estate and/or inheritance taxes, which can directly affect what your heirs receive. Taking these rules into account as part of your retirement planning can help you manage your long-term tax exposure and support your wealth transfer goals.

#4 – Work With an International Wealth Advisory Team

An experienced team of international advisors can help you navigate the financial complexities you face as an American expat retiree abroad. Your team should include an international financial advisor, a tax advisor and an estate planning attorney with experience helping U.S. expats manage their retirement income, tax obligations and cross-border estate plans.

It’s often wise to start by finding your international financial advisor. This is the professional who can serve as the team’s “quarterback” by ensuring all actions are aligned with your financial goals and overall retirement plan. It’s important to make sure this professional is serving as an independent fiduciary advisor, which means they’re legally obligated to act in clients’ best interests.

As part of that fiduciary responsibility, fiduciary advisors have both a duty of care and a duty of loyalty, as described below:

• Duty of Care – Providing advice in the client’s best interest but also executing that advice in the best way possible, along with ongoing guidance throughout the relationship.

• Duty of Loyalty – Placing the client’s interests ahead of their own, providing full and fair disclosure of all material facts and clearly managing or disclosing conflicts of interest.

Are you looking for professional guidance to help support your financial success as a U.S. expat retiring abroad? Look no further.

At Creative Planning International, we specialize in helping expats and cross-border families maximize their wealth and avoid costly mistakes. We understand the complex interaction of multi-jurisdiction tax and regulatory regimes and help clients develop operationally and financially efficient wealth management strategies customized to their unique circumstances. Because we serve in a fiduciary capacity, you can be confident we’re acting solely in your best interests.

Moving abroad doesn’t need to derail your retirement goals. Give us a call — we’ll be happy to help.

To learn more, request a meeting with a member of our team.