Many of the clients I work with are international — they originate from another country, namely from Latin America, but also Western Europe and the Asia Pacific Rim — and may be considering moving back to their country of origin for part or all of their retirement. Similarly, many U.S. nationals are deciding to spend parts of their golden years abroad.
The first step is knowing your client’s lifelong wish of planning to spend time outside of the states during retirement. And while it doesn’t take more time to plan for an international retirement in terms of time horizon, it does require different steps and due diligence on the advisors’ part.
Preparation is key for retirement planning, so living abroad is no exception — but location matters. The cost of living in Costa Rica or Mexico is significantly less than Switzerland or England. And there are different questions advisors need to ask clients to gain an understanding of their expectations and lifestyle abroad: Will you be renting or buying property? What are you bringing with you, or are you buying things twice to keep in both places? How will you get around? If by car, then you’ll need insurance. Will you travel, join a country club, or want family to visit you?
Have you thought about medical insurance? These are just some of the questions advisors need to ask and clients need to figure out from a day-to-day budget consideration. These are just some of the questions advisors need to ask and clients need to figure out from a day-to-day budget consideration.
Nuances of Money Management
Logistically, clients should make sure their bank has reciprocity with the country they will be living in to make accessing their assets easier. There is the ability to do wire transfers to non-U.S. banks, which has been around for decades, but maintaining foreign accounts must be reported to the U.S. Internal Revenue Service, which complicates things. Our clients keep their assets in the U.S., which allows us to continue to advise them and it’s easier fiscally. They’re going to be taxed in the U.S. either way, so it doesn’t necessarily make sense to transfer their assets abroad.
Being aware of the currency exchange rules, costs and commissions is also essential. Converting to local currencies and back to the U.S. dollar will cause clients to lose money so that must be factored in.
It’s also important to understand the tax laws of the country. If an individual is planning to work part-time, for example, that income has to be reported to the local jurisdiction and to the U.S. Since the U.S. has a different tax system than most other countries, if you are a resident or citizen you pay taxes on income from any other country while other countries will only tax what you earn in that country. Because every jurisdiction is different, we encourage international clients to work closely with a U.S. accountant and a local accountant to ensure that all requirements are met.
Living abroad is not without its risks, both politically and economically. As a fiduciary, you must become familiar with the jurisdiction and advise clients on the risks of moving there. Financially, understanding the value of the U.S. dollar against the local currency can be a big decision factor. If the dollar is weak, it may negatively impact a client’s financial status so they may not want to move until the dollar carries a bit further.
Additionally, some counties have geopolitical risks or unrest that can impact the clients’ decision to move if not under prime conditions, and threaten their livelihood.
Communicating with Clients Abroad
It’s obviously important to know when your client is leaving and returning to the states, or what their long-term plans may be. With different time zones, you need to be flexible to meet client needs if you want to work with clients internationally. You may need to work outside your normal “office hours” to be sure you’re fulfilling your duty as an advisor. Most of the time we connect over email, as that’s the easiest way for both parties, but phone or video calls also are a great addition for clients living abroad long-term. Clients may wonder if they should hire a local advisor when they are abroad and that’s usually not necessary. Their money is here; most advisors abroad wouldn’t be licensed or qualified to manage their accounts in their U.S.; and with the existing relationship you have with a client, there’s really no need.
The Complexities of Living Internationally
There are times when planning for a client who moves internationally, whether part- or full-time, gets more complicated than just navigating living outside the U.S. For example, if a client is from Europe and moves to the U.S. as a young adult, establishes their career here, gets married and has children here, but then gets divorced after 10 years, their estate plan is generally manageable for most advisors. But then if the same client moves back “home” to their country of origin, gets remarried and has children with the non-U.S. citizen spouse, this can create even more complexity from an estate planning perspective.
When it comes time to take Social Security, the non-U.S. citizen spouse won’t receive Social Security, but the ex-spouse living in the U.S. will. This is because divorced spouses can collect Social Security from an ex if the marriage lasted at least 10 years. The international aspect creates additional layers for the financial plan that advisors need to spend the time to work through.
Our advisors are adept at working through these issues and regularly work through this process with clients. Many large firms are scaling back on their service to international clients with these goals, so there is an opportunity for independent RIAs to help these types of clients. While setting up a structure for someone whose goal is to retire partially or full-time abroad may be more intricate, planning can help these clients realize their dreams in retirement.
Luis Strohmeier is a partner and wealth advisor at Octavia Wealth Advisors.