Author Topic: Saving for my international early retirement  (Read 8770 times)

Danielle

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Saving for my international early retirement
« on: February 14, 2012, 09:44:51 AM »
Now that I've saved up a suitable baby 'stache, I'm starting to thinking about retirement.  I'm 26 and just started a 401k (no employer "match" but I get a safe harbor of about $1500 each year).  The mustachian inside me wants to go nuts and max my contributions, but I may not plan to stay in the US my entire life.

Does anyone know how leaving the country affects retirement savings?  I don't think I would change my citizenship status, but I'm curious to know if leaving for several (10+?) years would matter.  My current plan is to work 10 more years (my boyfriend intends on working his whole life...hm).  Depending on how homesick my boyfriend gets, we plan to stay in the US for at least 5 more years (the window is somewhere between 5-10).

So...thoughts on how/where to invest?

lazydragon

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Re: Saving for my international early retirement
« Reply #1 on: February 14, 2012, 10:04:55 AM »
I read an excellent book a few years back about retiring overseas (forgot the name right now, sorry) and it's a very interesting concept.  There are some surprising places that are very cost effective to be an 'ex-pat' in.  This changes with laws over the years, but (from what I recall of the book) in the mid-2000s some good places were:  Panama, Belize, Malaysia, Thailand and most surprisingly ... Paris (high rent but excellent social net).  The idea is to take all quality of life factors into account including health-care, children impacts, infrastructure, language etc. when picking a place, beyond just the cost of living there.

Being a Canadian it may differ slightly, but I think you need to read up on the concept of "residency" vs. "citizenship".  For example, if I leave Canada for a 'long time' ... I think it's failing to live in Canada for 2 years of every 5 year period, I lose my residency.  That means I'm no longer eligible for CPP/OAS (public pension plans) or for public health care (we can get foreign health costs refunded for short-term trips) which are pretty serious funding shortfalls for me to plan for when retiring.  Thus, I'd need to save even more to be able to retire.  Losing your citizenship is something much more difficult to do and is generally done only by voluntarily 'revoking' it.

The thing is though, citizenship also requires you to file (and possibly pay) taxes to your home country, something most people would like to avoid :)  So there's some information out there about tricks people have done with retiring to live on a boat, for example, and not be a citizen of any country (and thus pay no income tax).  There's definitely some really clever things people have done in the past, but they often involve 'loopholes', have consequences (no citizenship means no consulate protection anywhere) and get very complex fast.

At any rate, I don't see why any of this would affect how you choose to save for retirement.  You're talking about what to do when you retire which is years off before you've even built the car that you will drive off into the sunset with.

Chris

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Re: Saving for my international early retirement
« Reply #2 on: February 14, 2012, 11:18:26 AM »
The thing is though, citizenship also requires you to file (and possibly pay) taxes to your home country, something most people would like to avoid

This. You can get out of paying state income tax, but you'd need to look at revoking citizenship to quit filing federal taxes. If you're looking at generating income the typical mustaschian ways (interest, dividends, capital gains, rent), you're going to owe US taxes on that. And even if you earn wages overseas you'll owe taxes. So if you're planning on keeping US citizenship, tax-advantaged accounts will still be attractive for you.

newb

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Re: Saving for my international early retirement
« Reply #3 on: February 14, 2012, 11:27:37 AM »
yeah, I agree with Chris. I would maximize my tax free accounts (roth ira, 401k) if possible primarily. I wonder if talking with a tax attorney in the future might help, but i wouldnt worry about that until youre a year or two away from retiring. Tax laws could change a lot in a decade.

Danielle

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Re: Saving for my international early retirement
« Reply #4 on: February 14, 2012, 11:34:26 AM »
I suppose I can look up how US citizenship can be "lost" passively, because I'm sure my funds could then dissolve into thin air.  I'm not planning to get rid of my citizenship, in the unfortunate case where "things don't work out" and I would come back to the US alone.  The plan (in more detail, which I suppose I should have had in my original post) is that I would go to India for an indefinite time, which is where my boyfriend is from.  (We also threw around the idea of "someplace in Europe," but that would be extremely tricky to handle if we were still both working, and displacing culturally mixed future children into yet another culture, etc.)  This could occur anytime - while I am still working, or after I've reached my goal of working for 10 years.  So the car which I was building may or may not exist by the time I want to drive off into the sunset!  Or it could be a pile of wheels and scrap metal!

I guess my real question is if I can contribute to a traditional IRA if I'm not in the country.  Or, would it be smarter to have a Roth and withdraw it before leaving and just suck up the penalty?  Or should I do something else with the money entirely?

A similar question is whether my boyfriend should contribute to a 401k if he doesn't plan to stay in the US until he is 65?

But I will definitely look into some books on international retiring!

shdrdr

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Re: Saving for my international early retirement
« Reply #5 on: February 14, 2012, 12:21:04 PM »
Can't comment on India, but if you go live and work in Europe, you qualify for a pension there. You may want to get a EU citizenship to qualify for the benefits, and this doesn't mean you have to give up your US passport. Most countries there accept dual citizenship.
As for taxes, you would pay taxes in the country you work in. You wouldn't pay any US taxes, since you wouldn't have any income there.
If you know what country you plan to retire in, that's where I would start the IRA. Nobody knows what the exchange rate will be in the future, so your IRA in the US might not be worth much if dollar happens to be weak when you need the money.

palvar

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Re: Saving for my international early retirement
« Reply #6 on: February 14, 2012, 12:28:33 PM »
Also, note that Belize and other Central American countries require ex-pat retirees to put a significant amount of their savings into Belizian (sp?) banks.

Chris

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Re: Saving for my international early retirement
« Reply #7 on: February 14, 2012, 12:48:28 PM »
As for taxes, you would pay taxes in the country you work in. You wouldn't pay any US taxes, since you wouldn't have any income there.

Income for US citizens is subject to US federal income tax no matter where the income is earned. If foreign tax is also paid, then that amount could be claimed as a foreign tax credit (Form 1116).

Mike Key

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Re: Saving for my international early retirement
« Reply #8 on: February 14, 2012, 12:58:35 PM »
Hey Danielle, where do you guys plan to go? We are looking to passively invest and get a second citizenship in Chile over the next 5 years.



As for taxes, you would pay taxes in the country you work in. You wouldn't pay any US taxes, since you wouldn't have any income there.


You sir are correct. The US government thanks to it's war on terror pretty much has it's hands in everyones pocket. The only way to escape that is to give up your citizenship. Otherwise, expect to keep paying Uncle Sam.


Of course, you could move to a country that is non-friendly to the United States. Like Venezuela for example. (No extradition with the US btw!)


Hiding money offshore is a good way to get noticed by the IRS. They've already been going after wallstreet types, and the atmosphere today, you need to be well secured.


I'm partically bothered personally that my own government can seize all my assets and screw me seven ways to Sunday at any moment. Which is the main reason why I'm interested in having assets in other countries.
« Last Edit: February 14, 2012, 01:03:24 PM by mikekey »

rowsdower

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Re: Saving for my international early retirement
« Reply #9 on: February 14, 2012, 01:23:48 PM »
Income for US citizens is subject to US federal income tax no matter where the income is earned. If foreign tax is also paid, then that amount could be claimed as a foreign tax credit (Form 1116).

If you have earned income outside the US and meet certain requirements (including being physically outside of the US for 330 days out of 12 months), you can exclude up to $92,900 from US federal taxes.  Note that this is earned income only, not investment income.  Details: http://www.irs.gov/publications/p54/ch04.html

I suppose I can look up how US citizenship can be "lost" passively, because I'm sure my funds could then dissolve into thin air.

You can't lose US citizenship just by being outside of the US.  You would have to actively renounce it, or perform certain acts against the US, such as joining foreign armed forces.  Details: http://travel.state.gov/law/citizenship/citizenship_778.html

chrissyo

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Re: Saving for my international early retirement
« Reply #10 on: February 14, 2012, 02:43:32 PM »
The thing is though, citizenship also requires you to file (and possibly pay) taxes to your home country, something most people would like to avoid

This. You can get out of paying state income tax, but you'd need to look at revoking citizenship to quit filing federal taxes. If you're looking at generating income the typical mustaschian ways (interest, dividends, capital gains, rent), you're going to owe US taxes on that. And even if you earn wages overseas you'll owe taxes. So if you're planning on keeping US citizenship, tax-advantaged accounts will still be attractive for you.

Taxes when you live overseas only become an issue if you aren't a bonafide resident in the other country (this is to do with the number of days a year spent in said country, ie you can't float between the US and your new chosen country. If you are a bonafide resident elsewhere (assuming it isn't a sanctioned country), you get a foreign earned income exclusion for the first $95k/year of international earnings (this amount increases annually by 2-3k - more specifics outlined here http://taxes.about.com/od/taxhelp/a/ForeignIncome.htm). You also get tax credit based on international taxes paid depending on the country and the specifics of the tax treaty the US has with that country (http://www.irs.gov/businesses/international/article/0,,id=96739,00.html). So, it only becomes a major issue if you live in a country with a lower effective tax rate and are earning a large amount of money (ie if you become an oil trader in Switzerland).

chrissyo

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Re: Saving for my international early retirement
« Reply #11 on: February 14, 2012, 02:47:17 PM »
Also adding, you can't just 'lose' your citizenship. You can lose your residency, but you have to formally relinquish your US citizenship in order to circumvent the tax complications. Otherwise, you are expected to file taxes annually (this is my 5th year living overseas, and I'm yet to have ever found it at all difficult with the help of TurboTax). You also have to report all your international bank accounts, if their total value is >$10k on a form td f 90-22.1.

Danielle

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Re: Saving for my international early retirement
« Reply #12 on: February 14, 2012, 03:58:36 PM »
Thanks everyone for the information.  It's good to start thinking about these things now, so that there's no surprises later!

DC

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Re: Saving for my international early retirement
« Reply #13 on: February 14, 2012, 06:34:51 PM »
For information on how and where to get a second citizenship and all sorts of things concerning investing outside the US, I'd recomend Sovereign Man (sorry I can't provide a link, I'm writing this on my cellphone). I'm not particularly fond of their style (way too paranoid for my taste and I read a lot of fiction and non-fiction authors that dwelve these areas) but I find it to be a great source of advice especially now that I'm thinking of getting a job/internship abroad.
Something tells me mikekey also reads it:)

jahoga

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Re: Saving for my international early retirement
« Reply #14 on: February 15, 2012, 02:52:28 AM »
Also adding, you can't just 'lose' your citizenship. You can lose your residency, but you have to formally relinquish your US citizenship in order to circumvent the tax complications. Otherwise, you are expected to file taxes annually (this is my 5th year living overseas, and I'm yet to have ever found it at all difficult with the help of TurboTax). You also have to report all your international bank accounts, if their total value is >$10k on a form td f 90-22.1.

Additionally, the US government has the right to keep asking you for taxes for 5 (or is it 10?) years after you've given up citizenship voluntarily. Supposedly this prevents people from hiding their money through temporary financial tricks.


jahoga

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Re: Saving for my international early retirement
« Reply #15 on: February 15, 2012, 02:58:12 AM »
Actually, I'm interested to learn about people's strategies for the reverse - i.e. working abroad and planning for early retirement in the US or elsewhere.

I've been overseas for my whole career, but investing in the US online and maintaining bank accounts back home.

Any tips and tricks for tax savings, using IRAs, etc. while abroad?

EnemyMind

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Re: Saving for my international early retirement
« Reply #16 on: February 16, 2012, 05:10:24 AM »
There is some suspect information here. Rowsdower and Chissyo are spot on however.

for some clarification, I currently live outside of the US. Its true that the US can tax you on foreign earned income, you do however get a deduction which for 2012 is somewhere around 95k.

You don't lose your citizenship for being gone they want that money from you no matter what. You can revoke your citizenship, but there is an entirely different tax for that and its not kind.

one interesting thing to note is that while your income is taxable, companies incomes are not taxable until they attempt to repatriate that money.

gross oversimplification but - establish company in foreign no tax zone - sell/move money whatever whatever - have the company profit - keep money outside of the us, live tax free. Note there is a big gray area on when you start " paying yourself " and how to structure all of that. Of course, the question is, in countries where there literally is no IRS equiv, even with a dual taxation treaty with the US. How will the US ever even get wind of this money? its up to you to use your own moral compass on all of that, I am not advocating it one way or the other. - at the very least your company paying for your housing is fully tax deductible, and if you do that and pay yourself 90k. especially some asian countries you will live quite well and be on the "law" side of the law.

be wary of using foreign credit cards/bank cards when you are back in the US however, big flag to look into foreign holdings.

Physics

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Re: Saving for my international early retirement
« Reply #17 on: February 16, 2012, 12:31:58 PM »
You can't lose US citizenship just by being outside of the US.  You would have to actively renounce it, or perform certain acts against the US, such as joining foreign armed forces.  Details: http://travel.state.gov/law/citizenship/citizenship_778.html

Quite so, we all remember what happened to the Zeok civilization.

AdrianM

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Re: Saving for my international early retirement
« Reply #18 on: March 08, 2012, 12:21:54 AM »
Check out this guy.

I have been subscribed to his free daily newsletter.
http://www.sovereignman.com/

He regularly talks about how you can go about moving, living and working outside the US and all its associated complications.

Hope you find what you are looking for.

AdrianM

dahlink

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Re: Saving for my international early retirement
« Reply #19 on: March 08, 2012, 08:28:28 PM »
Lots of gread financial feedback here already and I don't think I'm qualified to answer in that arena.  However, I'm in the navy and have been to many different countries.  If you are not good with learning other languages you may want to avoid countries with languages you don't know.  However, some countries are still navigable even if you cannot learn the local language.  I was able to get around in Japan fairly easy but had buddies helping.  I have thought about going the expat route for retirement as well.  It may stretch the value of the dollar even more.  Just some food for thought.

CuencaSolo

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Re: Saving for my international early retirement
« Reply #20 on: June 14, 2012, 03:28:58 PM »

Additionally, the US government has the right to keep asking you for taxes for 5 (or is it 10?) years after you've given up citizenship voluntarily. Supposedly this prevents people from hiding their money through temporary financial tricks.

They keep fiddling with the system for taxing people who renounce citizenship.  Currently, they do not keep following you around.  You have to file an extra tax return as of the day before you renounced.  If your net worth is high, like over $2 million, or your average income in recent years has been high (I forget the number; $350K?), you have to pay capital gains taxes on all worldwide investments as if you had sold them that day.  After that, if you still have income in the US, you have to report it on the non-resident alien's tax form, 1040NR, which results in higher taxes than a US citizen would pay on the same income.  This is a better idea for somebody with a substantial income in other countries, and not much in the US.

One of the things to consider is whether the country you are going to be living in tries to tax your worldwide income, making you go through a lot of monkey motion to claim credits for taxes already paid where the income was made.  I just found out that Ecuador, where I live, does theoretically claim to tax worldwide income for all residents, but in practice they don't bother.

CuencaSolo

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Re: Saving for my international early retirement
« Reply #21 on: June 14, 2012, 03:32:01 PM »
Also, note that Belize and other Central American countries require ex-pat retirees to put a significant amount of their savings into Belizian (sp?) banks.

There are often multiple types of resident visa in each country.  I qualified in Ecuador by proving a solid pension of over $800 a month!  If I had a Stache but no pension, a local CD of at least $25,000 would also do it.

CuencaSolo

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Re: Saving for my international early retirement
« Reply #22 on: June 14, 2012, 03:38:07 PM »
Check out this guy.

I have been subscribed to his free daily newsletter.
http://www.sovereignman.com/

He regularly talks about how you can go about moving, living and working outside the US and all its associated complications.

Hope you find what you are looking for.

AdrianM

You might also enjoy International Man, which has a lively forum!
http://www.internationalman.com

menorman

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Re: Saving for my international early retirement
« Reply #23 on: June 18, 2012, 11:30:41 PM »
I read an excellent book a few years back about retiring overseas (forgot the name right now, sorry) and it's a very interesting concept.  There are some surprising places that are very cost effective to be an 'ex-pat' in.  This changes with laws over the years, but (from what I recall of the book) in the mid-2000s some good places were:  Panama, Belize, Malaysia, Thailand and most surprisingly ... Paris (high rent but excellent social net).  The idea is to take all quality of life factors into account including health-care, children impacts, infrastructure, language etc. when picking a place, beyond just the cost of living there.
Might you be talking about this book by Paul Terhorst? I found it a couple months ago and it was definitely a good read despite its age.

Quote
At any rate, I don't see why any of this would affect how you choose to save for retirement.  You're talking about what to do when you retire which is years off before you've even built the car that you will drive off into the sunset with.
It definitely could affect how retirement is saved for. If the goal is an obvious 20 years away, OP may be more willing to do a bit of now-living mixed in with the retirement savings. However, if she realizes that living in another country could result in total costs that are 1/3 of what they would be here in America, then saving up only half the amount necessary here would give a healthy buffer to have. But more importantly, realizing that a lot less than thought is actually necessary could create quite a different attitude psychologically and OP might be more willing to kick savings into ultra-high gear knowing the time isn't long.