What To Know About Expatriate Retirement

September 15, 2021

If you’ve ever dreamed about spending your golden years abroad, you’re not alone. According to a 2018 analysis, roughly 12% of Americans dream of doing the same thing. More than 400,000 U.S. citizens currently collect Social Security benefits while living overseas.

Achieving this dream, however, involves a lot of paperwork. Before packing your bags and setting off for some distant land, it’s important to understand the basics of living abroad as a retired expat.

Expat Retirement at a Glance

Long-term financial planning can always difficult. Yet living abroad adds layers of complexity for several reasons:

  • U.S. taxation laws are based on citizenship and not geography. This means you’re still obligated to report earnings and losses to Uncle Sam — no matter where you live.
  • Living abroad exposes you to the possibility of double taxation in the U.S. and your host country. Fortunately, many countries have bilateral agreements allowing you to deduct taxes from your reporting.
  • Because foreign pensions are not qualified plans under U.S. law, your contributions do not reduce your tax liability. In fact, any contributions made by your employer may increase your liability for the year.

As a retired U.S. citizen living abroad, taxes, pensions and savings can be tough to navigate. This is especially true when dealing with language barriers and confusing regulations — not to mention complicated forms and applications. With the right approach and a little research, it’s possible to maximize your savings so you spend your expatriate retirement in comfort.

Planning for Pensions, Savings and Reporting

Whether at home or abroad, planning for retirement involves building a sufficient nest egg to cover future expenses. In most cases, this means setting up pension and savings plans:

  • Some countries recognize public pension plans from other countries. This makes it relatively easy to transfer retirement savings. That said, these agreements are rare, which is why many U.S. retirees turn to private expat pension plans that provide international coverage. The benefit of this approach is that your contributions continue to accumulate even if you frequently relocate (as many expats do).
  • Savings plans are easier to set up thanks to the rise of online banking. Cloud-based technology allows you to centralize all checking, savings, credit card and Roth IRA accounts in one “virtual” location as you continue making deposits from around the globe.

As mentioned, Uncle Sam expects you to report all income if you meet certain filing requirements. Some of the most likely IRS forms you’ll come across include:

  • FinCEN Form 114 — to report financial accounts abroad
  • Form 3520 — to report transactions with foreign trusts
  • Form 8938 — to report foreign financial assets (including pensions)
  • Form 1116 — to claim a Foreign Tax Credit if paying income taxes abroad

Note that these forms are in addition to the normal IRS forms that domestic retirees must complete. Moreover, your host country will likely have distinct reporting requirements — whether or not it has a bilateral tax agreement with the U.S.

There are a few additional factors to keep in mind when setting up your expat retirement plan:

  • Your U.S. taxes will often pay for services you won’t receive when abroad. Medicare is a prime example. Be sure to factor health care and elderly care into your retirement planning.
  • Moving more of your financial life into the cloud introduces a host of security risks. This means you need to take extra special precautions to protect your online data — such as setting up two-factor authentication (2FA) for all banking, retirement and savings accounts.
  • It’s a good idea to designate a trusted stateside friend or family member to receive any tax or financial forms sent via post. This can also prove useful in cases when 2FA codes can only be sent to U.S. mobile devices.

Are you ready to join the hundreds of thousands of Americans who manage to live in exotic cities or on white sandy beaches during their final years? With sufficient retirement planning (and some professional guidance), there’s no reason why you can’t.

At Expat CPA, we specialize in expatriate tax services and financial planning to help ensure you have a soft landing no matter where you choose to spend retirement. Schedule a free appointment with us today to learn more about our comprehensive expat tax services for retirees.

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