How to plan your retirement if you are an immigrant.
Do you plan to retire in another country? Are you an immigrant who divides your working life between several countries? Do you work abroad to support your family and hope to return to live near them when you retire? This guide is for you.
Even if you’re not close to retirement age, you probably already know that cross-border finance can be complex. We’ve talked to experts and put together a summary of the benefits, challenges, and next steps to help you plan for retirement across borders.
Retirement in another country: planning
First, you’ll want to get an idea of where you plan to retire. Take a look at your current retirement accounts, whether it’s a 401K, Roth IRA, pension plan, or anything else. It’s a good idea to have this information handy as you research.
plan your retirement
When planning your retirement in a country other than your residence, keep in mind:
How your retirement income will be taxed
Age restrictions for retirement in the country
The stability of the country’s economy and currency.
Let’s look at each of these factors.
Retirement Income Taxes
When you start living off your retirement savings or investments, you’ll want to know how they will be taxed.
In the United States, once you start withdrawing money from your 401K or traditional IRA after age 59 ½, your outlays count as ordinary income. For more information on how Roth retirement accounts are taxed, the IRS offers this table .
Another example is Canada , where the government provides Old Age Insurance (OAS) and “supplemental” Guaranteed Income Supplement (GIS) . Most of the time, the income for GIS purposes is the same as the net income declared in the tax return (not including the OAS). For more information, see the Government of Canada website .
Although tax laws vary widely, there are mutual tax treaties that help simplify some taxes for multinationals.
For example, the United States has tax treaties with different countries that allow mutual tax deferral of certain types of retirement accounts and pensions. You can check if the countries you live in or plan to retire from are on the treaty list .
Finally, some countries actively seek to attract foreign retirees with special tax rates. In southern Italy, as of 2019 , the government enacted a flat tax rate of 7% on retirement income for foreigners.
Costa Rica is another example: at the time of this writing, the government of that country does not charge a tax on income earned outside the country, including pensions or Social Security income.
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Age restrictions
In many places, there are age restrictions for retirement. You’ll want to know when you can withdraw your retirement funds without a penalty. For example, in the United States, in most cases, you must be over the age of 59 ½ to withdraw money from your 401K without a tax penalty.
In most EU countries, the retirement age is 60 years. The Finnish Pension Center has an up-to-date list of European retirement ages.
Economic stability
A relatively stable economy means you can expect a currency that doesn’t fluctuate much, as well as predictable rates of return on your investments. It is convenient that you consult the historical exchange rates to get an idea of how far your dollars, pounds or euros, for example, will go in your new country.
Yahoo offers a 2020 study showing how far an average US Social Security check goes in 35 different countries.
Although many factors determine economic stability, they are often similar to those that determine exchange rates.
Invest in more than one country: advantages
You might consider investing now in the country where you want to retire to build up some assets there. If you already have dual nationality, you may be able to invest in funds, companies, and even real estate in both countries.
“It opens up more opportunities for foreign investments in your investment portfolio,” says Luis Strohmeier , partner and wealth advisor at Octavia Wealth Advisors.
It goes on to explain that “in some cases, multinational investors may reap the benefits of a tax system that may be easier to navigate and less complex than others.”
What does this mean? If you are considered a national of a country with lower barriers to access to investment, you may feel comfortable taking more risks. You may also find it easier to get started. In some countries, there may be no or lower capital gains taxes, such as in Belgium or the Cayman Islands.
Navigate investment rules
If you decide to invest for retirement purposes in more than one country, some challenges may arise. Strohmeier says that can be difficult because investors have to adapt to the jurisdictions of each country where they have investments.
Lauren Cohen, an international attorney and founder of e-Council Inc., a company that offers business immigration services, agrees. She adds that it is especially important to know the regulations imposed by each country.
“Even if you have rights and privileges in more than one country, you have to make sure that you comply with all of them,” he says. “It’s also different when you invest in the country you live in versus the second country.”
For example, Americans who invest in foreign stocks often have to pay taxes both in the US and in the country of investment. This gets complex, but a good tax advisor can help you navigate it.
Understand government benefits
If you have worked in all the countries in which you have been a legal resident or citizen, you may be entitled to government benefits. For example, Social Security in the United States or the Canada Pension Plan (CPP).
Take this into account when planning your income after retirement. Make sure you contact the relevant agencies to find out what you need to do before moving out of the country, if you plan to do so.
In countries with nationalized public healthcare, it is possible to take advantage of these services as a retiree and reduce healthcare costs. For example, in Costa Rica , foreigners can join its social security system for a small fee, which gives them access to many hospitals and clinics in the small Central American nation.
Hiring a professional
The truth is that retirement planning for multinationals can be very complicated. Laws can change and new investment vehicles can emerge between now and when you want to retire. Also, if you decide to invest in a country where you do not reside, you will need to report the income and gains from your investments to the local jurisdiction and where you live.
Both Cohen and Strohmeier suggest, at a minimum, hiring an accountant specializing in offshore investments (ideally with clients that are multinational) to help you. While hiring an investment professional isn’t necessary, it can be helpful if you have a more complicated retirement plan.
If you hire someone, it’s a good idea to interview multiple people. Determine how you will pay your advisor: is it a flat fee for the advice, or will they take a percentage of your investment returns?
Ultimately, planning for retirement in advance is important, even if you don’t plan to move to another country in your later years. For more resources on retirement planning, Fidelity offers free tools on its website . You can also find many comprehensive guides for those planning to retire in another country with a quick search online.
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