Every year it seems that more Americans decide to pack it all in, reward themselves for decades of hard work, start a new chapter in their life, and retire to a foreign land.
The dream retirement locales may be defined by pristine sandy beaches, lush tropical rainforests, or centuries-old romantic cities to explore. But they usually all have one thing in common – the perception among retirees that they offer a simpler, and less expensive, place to spend one’s later years.
But maybe not so much anymore.
Following record numbers of Americans making the retirement move abroad in 2013 and into this year, 2015 may see a drop in the exodus. The reasons: an improved U.S. economy, a weaker economy in many foreign lands, and continued changing tax laws that reach out to just about everywhere now.
“I’m not seeing as much of the wanderlust among the retirees or near-retirees that I talk to about retiring abroad,” said Kerry Hannon, a retirement planning consultant and author of the book “Great Jobs for Everyone 50+: Finding Work That Keep You Happy and Healthy.” The reasons she hears: better job opportunities here, much better healthcare in the U.S., and increased taxation on foreign assets as long as one maintains their U.S. citizenship.
The tax changes began in 2014, with the enactment of FATCA (Foreign Account Tax Compliance Act). This law requires foreign financial institutions that have entered into agreement with the U.S. to report all accounts of U.S. citizens that have taken up residence. That includes foreign banks, stockbrokers, hedge funds, insurance companies, trusts, etc. The IRS now expects them all to name names.
So what’s new for 2015? Strength in numbers. The U.S. has entered into agreement with even more foreign countries under the FATCA, and indeed, many foreign countries are striking their own agreements with each other.
Tax havens are becoming a thing of the past. If your clients will soon live abroad, work abroad, make money abroad, or keep money abroad, Uncle Sam will know.
The unfortunate reality for many American retirees is that old saying, “out of sight, out of mind”—they begin to forget about tax compliance issues they thought they had left behind. It’s not surprising; these retirees are too busy having fun in their new-found free time.
That makes it all the more imperative that the retiree get their financial house in order before they pack their bags, and get smart advice on what they need to report once they relocate. You have a lot of work to do with your client, and maybe with some foreign help of your own/
“If a person works abroad and maintains accounts abroad, they need to make sure that they are reporting all of their foreign accounts on their income tax, as well as on their FBAR (Foreign Bank Account Reporting,” said Attorney Felicia Seaton, who specializes in estate and taxation issues for American workers that retire abroad. As a U.S. financial planner, you certainly can’t be expected to up on foreign tax regulations, estate law, or workplace compliance.
Seaton herself travels regularly between the United States and Israel, where she has maintained a home for years. She understands how U.S. laws pertain to Americans living abroad, as well as how local laws in Israel may conflict. Most financial planners don’t have the benefit of knowing the rules on both sides of the equation.