Of all the things to consider in an international relocation, expat retirement planning has to be up there as one of the most crucial.
The assumption might be that global professionals have the security of their existing pension plans. Still, in some cases, these cannot be drawn from overseas (or may attract substantial taxes to do so).
Therefore, all expats, even those many years from retirement, must think about their pension plans before packing a bag.
The Pandemic Retirement Reboot
COVID-19 has acted as a catalyst, creating a climate where millions of people are reassessing their priorities.
The immediate changes include:
- Record numbers of people moving to be closer to family members.
- Increased interest in early retirement.
- Huge volumes of professionals working from home permanently.
- Job market instability owing to mass career changes, hiring drives or redundancies at the other end of the spectrum.
But, with fluctuating interest rates, swiftly evolving immigration policies and ongoing travel restrictions, new expats should pay close attention to their finances before putting plans in motion.
Considerations for Expats in 2021
There are multiple factors to consider when choosing an expat destination, such as:
- Costs of living and taxes
- Safety and crime rates
- Housing markets and rental prices
- Job opportunities
- Schooling for children
- Culture and climate
- Visa routes and eligibility
The immigration framework has also pivoted in many countries, with rules around vaccination statuses to add to professional skills, financial independence, and robust health insurance requirements.
While there may be extra hoops to jump through, the Coronavirus pandemic has led to a phenomenal uptick in the rise in globalised workforces.
Employers familiar with expat recruitment will often sponsor visas, provide help with housing and offer remuneration packages with allowances and benefits.
That aside, pension planning remains key and can make a remarkable difference to financial stability in the years to come, particularly for expats moving to the other side of the world.
Pension Planning for a Global Move
Social security contributions, tax rates and pensions differ widely between countries, and low living costs don’t necessarily mean low taxation.
There are also various changes post-pandemic that impact retirement planning.
European Pensions Post-Brexit
The UK left the European Union at the end of 2020, which means that British expats may incur Overseas Transfer Charges, a tax of 25%, on pension funds they transfer outside of the UK into an international scheme.
A lot depends on where the scheme is based. Other regulations dictate the eligible plans – expats must transfer pensions to a product listed by the tax office as a Recognised Overseas Pension Scheme (ROPS).
Offshore Retirement Plan Scrutiny
It is common for US expats to supplement social security retirement benefits with an international savings account or offshore retirement plan.
Many freelance professionals or self-employed business people opt for this route since they won’t have an employer’s pension fund to contribute to.
However, there are many different premiums and complicated legislation around international savings accounts, and Internal Revenue Service audits can incur high costs and account management fees.
Dual Taxation Treaties
Things get more complex for expats who are liable for taxes in two countries.
For example, they might hold a pension in their home country, live abroad, and be a tax-resident in their host nation.
Dual tax treaties protect expats from paying tax twice on the same income, and there are tiebreakers in ambiguous circumstances to determine where they need to file returns.
However, not all countries have such treaties.
Where they do, it’s imperative to know the rules and understand what that means for your pension income since tax rates can vary from nothing to upwards of 50%, depending on your residency status and income level.
Retirement Planning for Digital Nomads
Another relatively new factor is around digital nomads – an increasingly common working setup for professionals.
Remote work has inevitably become the norm, and many businesses are switching to make distance-working part of their core structure.
That makes it easier for prospective expats to consider a move without needing to give up their employment. But, it also makes retirement planning a little trickier.
With a vast range of investment products, risk levels and emerging options such as cryptocurrencies, it’s never been as vital to seek expert financial planning.
Expat Retirement Tips in 2021
Having explored the varied factors to expat retirement planning, let’s cover the three golden rules to ensure you’re in a good position to retire in style, whether that’s at the same time as your relocation or further down the road.
- Seek Professional Retirement Planning Advice
The first place to start is with solid advice from an established financial adviser.
Choosing retirement products, calculating a budget or selecting an investment option is never something you should leave to chance without professional advice.
- Start Preparing for Retirement Now
Even if retirement is several decades away, saving now will make a considerable difference to your retirement – and leave you with many more options when the time comes.
- Don’t Make Assumptions About Your Future Income
The expat retirement trap is an easy one to fall into. Many countries offer low living costs, generous tax regimes and make it possible to live luxuriously on a fraction of the income you’d need back home.
However, that becomes a serious problem if you expect to retire to a more costly nation (including your home country) – and don’t have the savings to provide for the lifestyle you hope for.
It’s never wise to hope your low-risk, low-return products will provide sufficient income for your retirement. If they don’t, you could become stuck.
The years ahead will likely bring many further changes to cross-border taxes, social security entitlements and international investments as the world recovers post-pandemic.
Using an experienced professional to help plan your expat retirement is a crucial investment in your future financial stability and ensures your planning keeps pace with the changing retirement options out there.