Planning retirement for multinationals

Hello! We are Cross Border Wealth Advisors and are determined to help people simplify their financial lives when retiring abroad by offering financial solutions for wealth and portfolio management and tax preparation. I’m Victor Gersten, and I’m an expat myself. I’m a Certified Financial Planner and an Enrolled Agent with 14 years of experience in the financial services industry in San Diego, Ca. Furthermore, as an expat living in Spain, I have helped many expats to retire financially by sorting out the complicated legal, tax or investment questions that most expats have.

So, are you planning on retiring in another country? Are you a multinational, dividing your work life between countries? Do you work abroad to support your family and hope to return and live near them in retirement?
This guide is for you.

Even if you’re not close to retirement age, chances are you already know that cross-border finances can be complex.

Retiring in another country: planning ahead.

First, you’ll want to have an idea of where you plan on retiring. Then, take a look at your current retirement accounts, whether they take the form of a 401K, Roth IRA, pension plan, or something else. If nothing else, it’s a good idea to have this information handy as you research.

When planning for your retirement in a country that’s different from where you reside, consider:

  • How will your retirement income be taxed in the U.S.?
  • How will your retirement income be taxed in the host country?
  • The stability of the country’s economy, currency, and laws

Let’s take a look at each of these factors.

Taxes on retirement income
When you start living off of your retirement savings or investments, you’ll want to understand how they’ll be taxed. In the U.S., once you start withdrawing from your 401K or traditional IRA after age 59 ½, your disbursements count as ordinary income. The IRS offers this table for more information about how Roth retirement accounts are taxed.

While tax laws vary widely, mutual tax treaties exist to help simplify some taxes for multinationals. For instance, the U.S. has tax treaties with different countries that allow for the mutual deferral of taxation on certain types of retirement and pension accounts. You can check if the countries where you live, or plan to retire, are on the treaty list.

Lastly, some countries actively seek to entice foreign retirees with special tax rates. In southern Italy, starting in 2019, the government enacted a flat 7% tax rate on retirement income for foreigners.

Age restrictions
In many places, there are age restrictions on retirement. You’ll want to know when you can withdraw retirement funds without a penalty. For example, in the U.S., in most cases, you must be older than 59 ½ to withdraw money from your 401K without a tax penalty.

Nonetheless, there are optimizing tax techniques that allow you to withdraw earlier from your retirement accounts without any penalties. Properly plan a withdrawal strategy with a fee-only financial planner is important.

Economic stability
A relatively stable economy means that you can expect a currency that doesn’t fluctuate a great deal, as well as predictable rates of return on your investments. You’ll want to look at historical exchange rates to get an idea of how far your dollars, pounds, or euros, for example, will stretch in your new country.

While many factors determine economic stability, they’re often similar to what determines currency exchange rates. Nonetheless, there are techniques for those transferring large amounts of money at once from one country to another to save you commissions paid to third-party money transfer companies or banks.

Investing in more than one country: benefits
You might consider investing in your intended retirement country now to build up some assets there. If you already have dual citizenship, you likely have the ability to invest in funds, companies, and even real estate in both your countries.

Nonetheless, there are also barriers to investing abroad and especially coming from the Internal Revenue Service in the United States. It is important to understand international investment’s tax consequences before moving forward. According to Victor Gersten, a Certified Financial Planner and IRS Enrolled Agent and owner of a fee-only cross-border financial planning firm, “Investing abroad could open up diversifying opportunities for multinational couples, but one must be aware of Passive Foreign Investment Corporations (PFICs), which can potentially trigger additional taxes, filing requirements and cost along the way by the team of professionals needed to comply with the added burden.”

Navigating investment rules
There will be challenges if you decide to invest for retirement purposes in more than one country. Strohmeier says that it can be difficult because investors have to adjust to the jurisdictions in each country where they have investments.

Lauren Cohen, an international lawyer and founder of e-Council Inc., a company offering business immigration services, agrees. She adds that it’s especially important to learn the rules mandated by each country.

“Even if you have rights and privileges in more than one country, you need to make sure you’re complying with all of them,” she says. “It’s also different when you’re investing in the country you’re living in versus the second country.”

For example, Americans who invest in foreign stocks often need to pay taxes in both the U.S. and the country of investment. This gets complex, but a good tax advisor can help you navigate.

Understanding government benefits
Keep this in mind when planning for your post-retirement income. Be sure to contact the applicable agencies to find out what you need to do before moving countries if you plan to do so.

In countries with nationalized public health care, you may take advantage of these services as a retiree and lower your health care costs. For instance, in Spain, foreigners can join their social security system for a small fee, providing access to many hospitals and clinics.

Hiring a professional
The truth is that navigating retirement planning for multinationals can get very tricky. Laws can change and new investment vehicles can crop up between now and when you want to retire. Plus, if you decide to invest in a country where you don’t reside, you will need to report your investment income and gains to the local jurisdiction and where you live.

Hiring an accountant specializing in navigating foreign investing (ideally with multinational clients) to assist you is essential. Although hiring an investment professional may not be necessary for every country to hire an investment professional, it can be essential if you plan to move to the European Union.

Thanks to the PRIIPS and KIDS regulations, the European Union has added a layer of complexity to Americans who want to keep investing in the stock market while residing there. At this point, it is essential to have a trusted, experienced financial professional to help you navigate the best investment options.

If you hire someone, it’s a good idea to interview a few different people. Determine how your advisor will get paid: is it a flat fee for consulting or will they take a percentage of your investment returns? Fee-only financial advisors are fiduciaries looking out for your best interests while other financial advisors with other fee models may be looking out for their own financial interests.

Ultimately, it is recommended to understand all your options to choose the right country for you. The differences between Mexico and France are not only the language or the food but also how your income will be tax and the possible restrictions that your host country might place on your U.S. investment accounts.

Credit: Remitly, Cross-border Financial Planning