Retirement and General Savings Accounts for U.S. Citizens Living Abroad.
Lawrence Young
Senior Wealth Manager with 30 years of experience. Personally servicing clients in 26 countries. Creating growth for my clients through portfolio building and continued management.
A major concern for U.S.A. citizens is finding a platform or account that they can contribute to regularly to prepare for retirement or just generally saving. FATCA has caused a lot of issues for U.S.A. citizens globally. The Foreign Account Tax Compliance Act, was designed to stop tax avoidance or even tax evasion. It insists that any financial institution, bank etc comply with the Act if they wish to continue also doing business in the U.S. The financial institution or bank has to report back to the Fed on what U.S. citizens are holding in their accounts outside of the U.S. This comes at a cost as someone has to be employed to go through all of the U.S. citizens that bank or hold accounts with them, prepare the filings and report them back to the Fed. The simple solution? Simply don’t take on any U.S. citizens as clients! By doing so they have complied with the reporting rules. There are no additional costs to them and they can carry on doing business IN the U.S.A.
It is a fantastically simple solution for the bank or institution but terrible for you as an U.S.A. expat as it automatically reduces the choices available to you. You may well have discovered this for yourself when looking for options outside of the States. Have you ever been rejected on opening any kind of account anywhere simply because you are a United States Citizen? Now you know one of the reasons why.
It is not all doom and gloom. Accounts can be opened. You just may have to do an awful lot more homework depending on the type of account you are looking for and the current country you are resident in. In Vietnam you can bank without too much trouble. Certainly no more than any other nationality. But that’s for everyday simple banking solutions. When you start to shop around for other alternative savings solutions it can become rather limited, fairly quickly. This is a very common cause of complaint that I hear often in my profession. There are however choices available to you that I can assist with. It is common practice to hold accounts outside of Vietnam that are readily available to U.S. citizens and that fully comply with FATCA regulations so no need to worry about any excess reporting requirements from you. They don’t have any restraints n them.
? You are the legal owner 100% of any assets held in them such as cash, stocks, bonds, funds.
? All accounts and client monies are ‘ringfenced’. Meaning that all accounts are client specific and kept off the balance sheet of the institution. So even if something happened to the underlying banking facility it is irrelevant as the assets are fully owned by you.
? They are outside of the Vietnamese banking system which can be quite perplexing.
? You can open an account with a minimum monthly contribution of $300 per month with no maximum limitations monthly, for anywhere between 5 years and 25 years.
? You can name beneficiaries on the account free of charge so your loved ones are protected. All the assets plus growth would be passed on to your named beneficiaries in the event of something happening to you in the form of cash plus an additional 1%.
? All accounts are fully regulated by the relevant governing authority. The Financial Conduct Authority depending on your choice of account location.
? Fully transparent and portable. You have online access 24/7 to see what assets are held and valuations can be retrieved instantly and in real time.
? Multiple currencies available and assets can be purchased across all major exchanges globally.
? Custodian and Trustee are included.
? Advantage of economies of scale when trading.
? Dollar cost averaging is a bonus when applying and saving funds on a regular monthly basis. If markets are lower on any given monthly entry point, you simply are able to purchase more units or shares on that month at lower prices.
? Assets can be purchased on all global major exchanges around the world.
? Multiple choices on how to fund your account monthly. Debit/Credit card, Telegraphic Transfers, Standing Orders.
? I can also arrange offshore banking facilities in the Isle of Man if required with online banking and ATM cards subject to a minimum balance held on account.
So What Should You Be Saving Each Month?
How much do you need to have saved up before you retire? The answer to that question used to be pretty straightforward. With $1 million in savings, at a 5% interest rate, you could be reasonably assured of having $50,000 in annual income by investing in long-term bonds and simply living off the income. If you saved $2 million, you could expect to have a six-figure yearly income without having to dip into principal.
Unfortunately, interest rates have been on a steady decline for roughly three decades now. Back in 1980, nominal Treasury Bill rates were approximately 15%, but as of June 2021, a 30-year Treasury is yielding 2.25%. Lower bond yields have made the investing equation in retirement more difficult. It was only exacerbated by the credit crisis, which complicated how individuals save enough to live off in retirement.
? You can open an account with a minimum monthly contribution of $300 per month with no maximum limitations monthly, anywhere between 5 years and 25 years.
? Investing a chunk of money in long-term bonds is no longer the road to a secure retirement that it once was, given the decline in bond yields and the fallout from the 2007–2008 credit crisis.
? Knowing how much to set aside in a 401(k) requires having a savings goal and considering your current status, including your age, savings, and projected retirement age.
? Take rules of thumb with a grain of salt—such as the 10% rule for retirement savings and determining the percentage of bonds in your asset mix by your age.
? Try and consider the 50/30/20 rule. 50% of your income goes on your absolute needs. Rent, food etc. 30% goes on your monthly wants. I ‘want’ that restaurant meal, I ‘want’ that new pair of jeans, I ‘want’ that holiday. And 20% should be going into savings and investments pots. Anything you do must be affordable, sustainable and not impact your normal living standards. Unless of course they are excessive to begin with.
A common rule regarding asset mix is that the percentage an individual should invest in bonds is equal to their current age. Although this allows for a gradual progression to living off interest income at retirement, there is little need for a 20-year-old, who has many decades to ride out stock market volatility in pursuit of real returns, to have even 20% invested in bonds.
How much can you contribute to a 401(k) normally?
The most anyone can contribute to a 401(k) is $19,500 for 2021 ($26,000 for those age 50 or older). Employer contributions are on top of that limit but that will probably not exist as an expat working for localized companies. These limits are set by the IRS and subject to adjustment each year.
That limit dictates how much you can contribute, but it doesn’t tell you how much you should contribute.
An IRA might be a better option
If you were already contributing up to your employer match at any time in the past, then another way to invest additional cash is through a traditional orRoth individual retirement plan. (And if you have no employer match, start with the IRA.) The IRA contribution amount is much lower — $6,000 in 2021 ($7,000 if age 50 or older) — so if you had maxed that out but wanted to continue saving, you would have gone back to your 401(k).
The Bottom Line
Setting aside as much money as you can and investing it prudently are two conditions generally under your control as a saver. Of course, you also need to live within your means and either stay current on financial markets or hire a trusted wealth manager.
Use the 401(k) calculator to see what you need to do, without the match.
https://www.aarp.org/.../retirement.../401k_calculator.html
Get in touch if you need assistance with regular savings plans or lump sum investment solutions.