News & Commentary

Advising Clients Who Choose To Live Outside The US

By: Miguel Sosa, CIMA®

Just because a client wants to live somewhere doesn't mean they really should.

The number of Americans living abroad is rising.

Though the U.S. State Department doesn’t formally track them, it’s estimated there were about 8.7 million U.S. expats in 2015 (not counting military and diplomatic corps), up from 4.1 million in 1999. In one interpretation, this surge reflects an increasingly globalized economy that “continues to create jobs with unprecedented flexibility,” with the result that “more people than ever are choosing to reside in different countries.”

Fair enough, but where do they actually go? According to the U.S. Government Accountability Office’s 2015 report “Workplace Retirement Accounts,” which refers to geographic regions, not specific countries, the breakdown looks like this:

  • 40% Western Hemisphere — Canada, Mexico, the

  • Caribbean, and Central and South America

  • 26% Europe

  • 14% Middle East

  • 14% East Asia and Pacific — including Australia 

  • New Zealand

  • 3% Africa

  • 3% Central and South Asia

In a qualitative assessment of top retirement countries for U.S. expats, Business Insider names:

  • Portugal

  • Panama

  • Costa Rica

  • Mexico

  • Colombia

  • Ecuador

  • Malaysia

  • Spain

  • France

  • Vietnam

Among the similarities between onshore and offshore clients is the universal desire for financial planning that’s in sync with their personal goals, which can in turn shape planning around the client’s family, work life and postcareer plans.

Among the similarities between onshore and offshore clients is the universal desire for financial planning that’s in sync with their personal goals, which can in turn shape planning around the client’s family, work life and postcareer plans. Among these universal concerns are:

  • Will I have enough money to retire according to a specific timeline?

  • Will my savings keep pace with my probable life span and current lifestyle?

  • Will I have enough to meet all my healthcare needs?

  • How should I prepare to pass my wealth to my heirs?

As far as major differences go, expats have certain requirements they don’t generally share with our U.S.-based clients. For example, they are especially concerned with health care access and cost. And while many have done some initial homework on potential offshore abodes, such cribbing is no substitute for personal experience on the ground.

Naturally enough, many expats choose places to live based on prior pleasure travel—and soon discover that daily life in a given vacation destination is quite different from experiences gleaned in a visit or two. Bluntly, just because

you want to live there doesn’t mean you really should—certainly not with your eyes anything less than wide open. Some jurisdictions are very welcoming to expats, while others regard them as residents who need to file countryspecific taxes just like natural-born citizens. Further, some countries will seek to tax you on your global income—as the U.S. does, incidentally.

Anyone eyeing a particular spot as a potential domicile should take the time to consult with local legal counsel and accountants to understand the basic “rules of the road” there. We already mentioned the wisdom of seeking to avoid exposure to undue filing burdens and over-taxation. Among other areas where expats have to be to be careful:

Understanding that a residence begun as an overseas job placement, for example, may be quite different once the employee is on his or her own, and no longer “coddled” by a perks-dispersing company

Currency exchange, which can play a crucial role in lifestyle maintenance, is another area of particular interest to expats. Many currencies—including the U.S. dollar, the euro, the Swiss franc, the Indian rupee and the pound sterling—are “floating.” The prices of these and other floating currencies are set by the foreign-exchange market based on supply and demand relative to other currencies.

Living in a country with a floating-rate currency can make for an interesting ride when it comes to deciding how much money to keep in the country of residence as opposed to the US. (A floating-rate currency contrasts with a “fixed” exchange rate, which is entirely or predominantly determined by the national government. Still other jurisdictions peg their currencies to another national currency, as Ecuador does with the US dollar.) To show the potential impact of currency fluctuations relative to an expat’s “home” currency, I’ll mention a client of mine who is in the process of of building a home in the Philippines — whose floating-rate peso is one of Asia’s strongest currencies this year, despite the Covid pandemic. In plain terms, the cost of construction has been increasing at a pace that makes him squeamish — and calls for some contingency planning.

The basic elements of planning for pre- and post-retirement clients apply no matter where a U.S. person decides to live. But if a U.S. client decides to retire abroad, then another layer of planning considerations—typically around taxes and currencies—come forcefully into play.

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