You’ve moved to the US to achieve bigger and better things in your career and your life. You’re investing a lot of time and effort in a happier future but are you sure it will be enough when you reach your 60s, your 70s or your 80s? Will you have enough saved up for your retirement?
$1 million in retirement savings has long been the benchmark, however, for today’s 30-something millennials, even that may well prove to be just above the poverty line.[1]
Whether you’ve started saving or not, there is still a lot you can do to enjoy a comfortable life after you retire. The sooner you begin, the better off you will be.
The five steps to a happy retirement in the US
1. Set your goals
Get very clear on your goals before you settle on the amount you want to save. Ask yourself the following questions:
- Where do I want to live after I retire?
- How much would I ideally have to spend per month?
- Are there any other likely sources of income apart from my pension?
- What is the lifestyle I hope to have and the activities I plan to undertake? Will I be dining out regularly, travelling often?
2. Check all your retirement planning and pension transfer options
Consider the different retirement plans and pension transfer options, and choose the one that suits you best. It is advisable to take this step as soon as possible, as this choice will also affect other areas like the funds that can be withdrawn tax-free and your inheritance planning options.
There is a wide range of pension planning solutions:
- Defined Benefit schemes
- Defined Contribution schemes
- Discretionary Fund Management
- SIPP (Self Invested Personal Pension)
- QROPS (Qualifying Recognised Overseas Pension Scheme)
- QNUPS (Qualifying Non-UK Pension Scheme).
As an expat, you will probably want to focus on the last three.
SIPPs
SIPPs are a great option for those who prefer
- Flexible investment choices (based on the investment choices you are comfortable with, you have a choice of three different types of SIPPs – a full SIPP, a low-cost SIPP and a hybrid SIPP)
- Lower costs
- The option to access their money from the age of 55 and withdraw up to 25% of the fund as a cash lump sum.
They are also a good choice if you’re unsure whether you will spend your retirement in the UK or abroad, since they can be applied to both scenarios.
QROPS
QROPS is an international pension scheme for those who are based in a jurisdiction other than the UK and is therefore another popular option among expatriates retiring abroad.
Some of its main advantages are
- Retirement income protection against currency fluctuations
- Access to up to 30% of the fund as a Pension Commencement Lump Sum (PCLS)
- Control over the timing and amount of any income and PCLS that you want to withdraw.
Nevertheless, certain existing restrictions on QROPS mean that in some circumstances, a SIPP or QNUPS will be a more suitable choice.
QNUPS
Finally, QNUPS is an overseas pension scheme that meets the criteria outlined by HMRC, within ‘The Inheritance Tax (Qualifying Non-UK Pension Schemes) Regulations 2010’.
Just like QROPS, QNUPS provides
- Flexibility in pension planning
- The option to withdraw a lump sum of 30%
- Asset protection and exemption from the UK Inheritance Tax, which many would say is its main advantage. (This, however, should not be the sole reason for setting it up and HMRC are very active in seeking out those who use it for this purpose alone.)
3. Choose a tax-efficient retirement (in other words, are you aware of all your options?)
Make sure you understand all the taxes that will apply to your retirement.
Many UK expatriates, for instance, do not realise that even if they no longer reside in the UK, they remain ‘UK-domiciled’ in the eyes of the law and are shocked to find that this means they are subject to the UK inheritance tax on their worldwide estate at a rate of 40% after allowance. It is therefore helpful to know that there are several reliefs and exemptions to the Inheritance Tax.
For example, did you know…
- you can get Business Relief of either 50% or 100% on some of an estate’s business assets?
- an NT (no tax) code and paying your taxes in the US might be a better option?
- that if you pay your taxes in the US, you might be able to limit estate taxes by setting up a trust account in the name of your beneficiaries.
In short, you want to make sure that not only have you accounted for all your future expenses, but that your retirement is as tax-efficient as possible.
4. Invest wisely
Consider where to invest and at what risk level.
If you are unsure of what you would be comfortable with, here are some useful Free Guides we have put together that will reveal your attitude towards investment risk.
There are many investment plans from which to choose.
A SIPP, for example, is likely to be a much more cost-efficient and flexible option than a defined benefit scheme because:
- a SIPP can be invested in numerous ways, from stock exchange listed investment trusts, commercial property, stocks and shares to UK and foreign government bonds, bank deposit accounts and exchange-traded funds.
- a defined benefit scheme is heavily linked to gilt yields, which – while generally considered a low-risk investment – are directly impacted by market fluctuations and inflation. A telling example is the uncertainty around Brexit, which led to a rise in the aggregate deficit in defined benefit schemes in the Pension Protection Fund. [2]
5. Insure your future
Take a look at different insurance plans to cover all the essentials, from your estate to health, medical costs, long-term care, and income protection.
A financial advisor will walk you through all these steps.
Everybody’s circumstances are different and it is therefore important to seek out a professional who can explain the intricacies of a retirement plan, wealth management and investment plans, calculate your inheritance tax and review your retirement options in the UK, as well as abroad.
If you want to learn more about your retirement planning options, insurance, taxes or wealth management, email us at christopher.thornton@blacktowerus.com to book a free consultation.
We’ll be happy to help!
Blacktower Financial Management (US) is regulated with the SEC and our international pensions transfer specialists can help you with your pensions decisions. We will listen to your needs and use our experience to find the right products for your circumstances, personal or business, home or abroad.
*The income received from gilts. These are bonds issued by the UK government (the UK equivalent of US Treasury securities).
[1] https://www.cnbc.com/2017/12/29/in-retirement-a-1-million-nest-egg-isnt-enough.html
[2] https://www.ftadviser.com/pensions/2019/04/10/pension-deficits-jump-35bn-in-march/