US Citizen - Retirement Saving...?

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spartan34
Posts: 9
Joined: Fri Dec 03, 2021 10:52 am

US Citizen - Retirement Saving...?

Post by spartan34 »

Hey everyone,

Im new to international teaching/having a career and I’m curious how people in our profession begin to save for retirement. I’m an American, and I’ve been reading up on starting an IRA/Roth IRA, but seeing as the money I make abroad is counted as a Foreign Earned Income and excluded from being taxed, I’m unable to qualify for any sort of IRA account. Ideally I’d like to begin putting money away in an IRA as I have control over it. I am sure I’ll get advice such as “seek a school that provides retirement/pension” but I’m more so interested in seeing if there’s any way I can personally begin putting money for the long haul.

I’ve read about claiming a foreign tax credit instead of claiming a foreign earned income? That would allow for IRA contributions..? Any Americans who have navigated this field, I’d love to hear from you.

Much appreciated.
sid
Posts: 1383
Joined: Sat Dec 02, 2006 11:44 am

Re: US Citizen - Retirement Saving...?

Post by sid »

Stick to the earned income route, and get hold of any of Andrew Hallam’s books. poor Teacher is the first and there is a very recent one as well. Follow him online.
Avoid the sharks that prey in international school waters. “Advisors” who will sell you very expensive “instruments” and “pensions”, with long commitments, complex structures, and no path to riches except for the advisor. If it sounds too good to be true…
sid
Posts: 1383
Joined: Sat Dec 02, 2006 11:44 am

Re: US Citizen - Retirement Saving...?

Post by sid »

Very strange. The first book is “Mill…ionaire” Teacher. Keeps changing to “poor”. What an odd feature of the forum.
fine dude
Posts: 632
Joined: Tue Dec 18, 2012 7:12 pm
Location: SE Asia

Re: US Citizen - Retirement Saving...?

Post by fine dude »

Is this the same Andrew Hallam who recommends giving up junk food and invest those expenses in index funds and murky firms based in Dubai? Good on him.
Psychometrika
Posts: 73
Joined: Sun Nov 20, 2016 10:08 pm

Re: US Citizen - Retirement Saving...?

Post by Psychometrika »

I just use a regular taxable brokerage account at Schwab and put my money in index funds.

A traditional IRA would be pointless for me as I already don’t pay taxes on my income. A Roth has hypothetical advantages, but since I don’t plan on withdrawing an amount that would exceed the long term capital gains threshold of over $40k annually (80K for married) the effective tax rate on my taxable account will be close to zero anyway.
marieh
Posts: 210
Joined: Mon Feb 11, 2013 11:33 pm

Re: US Citizen - Retirement Saving...?

Post by marieh »

Psychometrika wrote:
> I just use a regular taxable brokerage account at Schwab and put my money
> in index funds.
>
> A traditional IRA would be pointless for me as I already don’t pay taxes on
> my income. A Roth has hypothetical advantages, but since I don’t plan on
> withdrawing an amount that would exceed the long term capital gains
> threshold of over $40k annually (80K for married) the effective tax rate on
> my taxable account will be close to zero anyway.

This is the way to do it. Also, for anyone in their 20's/30's reading this, start investing now if you haven't already. So many of my coworkers waited until their 40s/50s to start investing and are now trying to figure out how to stay overseas as they approach their 60s because they can't yet afford to retire.
interteach
Posts: 207
Joined: Wed Nov 29, 2006 2:25 pm

Re: US Citizen - Retirement Saving...?

Post by interteach »

Some international schools offer a Roth 401(k) to their US employees, but it tends to be the better schools.

Without that (and even with it), it's best to do some forced savings every month and find an investment strategy that works. If you don't want to talk to the usual expat investment advisors, you can always talk to someone where you open your investment account. It may take them longer to answer your questions, but the fees and options are often better.

The bottom line is that if you want to stay in international schools for a long time and are a US citizen, you need to take charge of your retirement savings. Previous comments about late career teachers not having enough savings are real and you don't want that to happen to you. The anxiety goes down a lot once you start taking action.
buffalofan
Posts: 338
Joined: Wed Jan 06, 2010 11:08 pm

Re: US Citizen - Retirement Saving...?

Post by buffalofan »

If you find a school with a 401k for US citizens with a match, that is the best you can hope for. Not common but they do exist.

Otherwise your only option is a normal (taxable) US-based brokerage account. This can be tricky, as I think you still need to be physically in the US and have a US address to open the account online. You also need a US phone number that can receive texts in order to log in but there are apps for that. Then you can buy ETF index funds. Never mention anything to your brokerage about being an expat or having a foreign address.

Whatever you do, do not buy foreign-domiciled mutual funds or ETFs, the tax treatment and tax filing requirements for US citizens on these are insane.

The foreign tax credit route to fund an IRA may work only if you are actually paying significant foreign taxes. If you are working in a no tax or low tax country, or your school pays your foreign tax for you, this will not work.
mamava
Posts: 314
Joined: Sat May 11, 2013 7:56 am

Re: US Citizen - Retirement Saving...?

Post by mamava »

Find a financial advisor that knows foreign income. We have Roth IRAs and we save like mad. As always (and it's usually not much help by the time a person asks for it) people need to start saving in their 20s. We are a dual teaching couple, 25 years in the US (public schools) and now 15 years overseas (3 of those as missionaries) and we have more than enough for retirement, as well as putting 3 kids through college debt-free. Living overseas massively helped, but it was starting when we got married (22) that really gave us the headstart.
Beg-1
Posts: 8
Joined: Mon Jun 03, 2019 11:29 am

Re: US Citizen - Retirement Saving...?

Post by Beg-1 »

[quote=mamava post_id=62468 time=1640307400 user_id=132083]
Find a financial advisor that knows foreign income. We have Roth IRAs and we save like mad. As always (and it's usually not much help by the time a person asks for it) people need to start saving in their 20s. We are a dual teaching couple, 25 years in the US (public schools) and now 15 years overseas (3 of those as missionaries) and we have more than enough for retirement, as well as putting 3 kids through college debt-free. Living overseas massively helped, but it was starting when we got married (22) that really gave us the headstart.
[/quote]

Doing a Roth while abroad is the holy grail. How did you set that up?!
buffalofan
Posts: 338
Joined: Wed Jan 06, 2010 11:08 pm

Re: US Citizen - Retirement Saving...?

Post by buffalofan »

[quote=Beg-1 post_id=62472 time=1640371729 user_id=242704]

Doing a Roth while abroad is the holy grail. How did you set that up?!
[/quote]

If you are paying a good whack of foreign taxes, it is pretty straightforward by using the FTC.

I disagree somewhat that it is the holy grail. Obviously the tax treatment is ideal, but contribution limits are only 6k or 7k USD per year. Compare that to finding a school that offers a 401k with matching where you can stick in up to $20k USD or so a year + the match. Or saving in a taxable brokerage account that has no limit, and the standard deduction will take care of any tax liability in most situations.
inspired
Posts: 15
Joined: Sat Dec 27, 2014 8:02 am

Re: US Citizen - Retirement Saving...?

Post by inspired »

Mentioned already, but I wanted to add some Ideas:
1) Index funds are excellent. We like to use Fidelity as our main investment platform.

2) All your income that was taxed inside the USA, can be used to buy Fidelity indexes that have next to no fees and no management expense ratios. This means if you worked as a teacher in the USA, and were taxed, then you should be able to put some of that into your index funds, like the FZROX. Hire a tax accountant to double check this. Index funds that have no fees are the best in my opinion and have been extremely lucrative for us. Other income that isn't taxed in the USA should be planted inside other indexes or ETFS. We really like the SPDR. We prefer to avoid mutual funds.

3) Avoid sharks. Highly discourage leadership from allowing sharks to visit schools. Do not take any investment from an outside source that visits your school.

4) Get Andrew's book titled poor Expat.

5) Live in a location for a few years to make seed money, for example, China is a good choice. Relatively low cost of living if you avoid expat bubbles. There are probably better locations than China, but I know China best, and its been amazing for us. If you are an experienced teacher, then you can work at a high level international school and get paid a ton of money, and probably move out of China after 3 years with a massive bump on your retirement.

6) Commit to saving a certain percentage of your income each month. Get a reliable way to send money home so that it can be invested.

7) If your school offers a ROTH or 401K match, then absolutely TAKE IT and match it. It is basically free money.

8) Make a plan and ensure you and your spouse (if you have one) are on the same page with that plan.

9) We liked Dave Ramsey's get out of debt plan and have modified it a bit for our investing.

10) Get onto an app, such as Mint, or Everydollar, and start documenting where your money is going. We prefer to use Google sheets, but before that, I was a huge Mint fan. Track all of your spending so you can plug leaks. Also, make a budget and stick to it on that Google Sheet, Excel document, or on Mint.

11) Read more books on investing or get onto a podcast. We like Dave Ramsey's podcast. I also liked reading Rich Dad, Poor Dad, which is a great intro book on assets and liabilities.

Any stress you may be feeling about retirement will evaporate when you get everything onto an app or program that you can understand. Once you have a good spending diary, you can then make a plan for 5-10 years out, and see when you will be at a certain net worth to retire. Once that plan is established, all retirement worries go away ;).
PsyGuy
Posts: 10424
Joined: Wed Oct 12, 2011 9:51 am
Location: Northern Europe

Response

Post by PsyGuy »

Im not a fan of Andrew's books.

There are a couple ways to make an IRA work: First, youre somewhere like the WE and youre already paying significant taxes as in using the Foreign Tax Credit. By claiming the credit you can then use your income to make contributions but youre limited to USD$6K is youre under 50 and USD$7K is your 50 and over. The other option if you live in a country where you pay little or no taxes or if your IS pays your taxes and thus you are instead excluding income so that you dont have to pay US taxes on it, then you can not use excluded income to make IRA contributions. The Second option is you could create a US company and then pay yourself through that company. Youd have to pay Self Employment Tax on it (but this gets you social security credits as well) and you could then pay yourself enough to make what ever contributions you wanted to make.

You dont have to go US though, thats one of the biggest myths. That if youre a US Citizen you have to stick with US investment products and services. You can set up a target date retirement account with many brokerages across the globe such as in the EU/UK or Asia (JP, HK, SG).

Essentially though you want to be at an IS youre going to retire out of by 50 so you can build a pension. Saving and investing is great and its important, but practically unless your goal is retiring somewhere such as LCSA where health care is so cheap you can pay out of pocket youre going to need to be somewhere that is going to provide you healthcare and other services and resources aside from an income stream.

China is a good place to earn a high rate of coin, the ME is better especially the Kingdom.

@sid

Its an anti-spam filter feature.
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