General News & Insights

Every day in the United States thousands of retirement savers, whether they are Americans, resident aliens or non-resident aliens, reach retirement age and face the question of what to do with their employer-sponsored 401k. Do you leave your pension pot alone, or do you give it a stir?

Across the globe, governments, lawmakers and society in general are all beginning to realise that as human longevity increases, the need for action on retirement planning is becoming more crucial and a social imperative. Without action, America, along with much of the rest of the world, will soon see generations of people whose retirement years will be impoverished and where affording the basics in later life, such as housing and healthcare, will become a lifelong worry.

However, there are various bills currently doing the rounds in Congress that show there is serious intention to make big changes to retirement planning.

All non-US citizens who live in the United States are considered to be non-resident aliens unless they meet the criteria for one of the following two tests.

For many retirement savers, early retirement is the holy grail. However, the reality is that once an age is reached when early retirement is available, many individuals re-evaluate their plans, putting retirement on hold either out of financial concern or a feeling that they are not yet ready to end their careers.

These people are lucky; they have a choice. But what will happen if ill-health, family commitments or professional circumstances take retirement plans out of your hands. Not only can such a situation make you feel helpless, it can leave you facing a cashflow conundrum that has the potential to plague your sunset years with insecurity and uncertainty.

This is why it is essential your retirement plan accounts for the possibility of the unexpected.

Things are not getting any easier for younger retirement savers. It is predicted that by 2060, the number of Americans who are 65 or older will have risen from 46 million today to more than 98 million – with this demographic accounting for 24 percent of the population (up from 15 percent today).*

Add to the mix the fact that college fees are at record high levels, entry-level wages are low and housing costs are high and a picture quickly establishes of increased financial pressure on a whole generation of retirement savers. In fact, for many aged 18 to 34, simply being a retirement saver may seem like a distant dream as, according to a report by Merrill Lynch and Age Wave, this demographic owes an average of $3,700 in credit card debt.**

The future of retirement planning in the United States is at a kind of crossroads: traditional employer pension plans no longer offer the gold-plated guarantees they used to and it is more incumbent than ever before that individuals devise their own strategies for their long-term financial futures. However, this has come at just a time when retirement investors face an additional pressure: as parents they are increasingly obligated to offer monetary help to their children.

This picture is supported by a recent survey by Bankrate.com* in which half of American parents reported placing their adult children's financial needs above their own retirement plans.

More than a decade of slow wage growth coupled with a cocktail of spiralling living costs – for example, housing, health insurance and vehicle insurance – mean that younger generations are facing unique financial challenges. Add into this mix the cost and increased popularity of higher level degrees, and it is easy to see why parents might want to help out.

A General Accounting Office report* has helped cast light on why the US government remains reluctant to drop the Foreign Account Tax Compliance Act (FATCA) system in favour of the globally-accepted Common Reporting Standard (CRS).

The CRS came into effect in 2014 as a response to international tax evasion, money laundering and other financial crime. Up until this point, it was extremely difficult for different jurisdictions to share information regarding accounts, income, assets and other financial arrangements. Those instruments that were available were severely limited and had little scope outside of the efforts of individual agreements between two countries.

The Organisation for Economic Co-operation and Development (OECD) changed all this by introducing the CRS, which has quickly become the global standard for exchange of information between the tax authorities of nation states across the world.

It's possible that you will never have to make any financial decisions more important than those relating to your retirement plans. These are likely to involve the consideration of a number of important factors, including the following:

Your present and future cashflow needs Whether you wish to create a legacy for family or charity Your level of risk-tolerance Whether you wish to simply protect or to grow your wealth An assessment of market conditions Your personal goals