Retirement planning is vital for everyone, but for Americans living abroad, the process brings additional layers of complexity. From understanding foreign pension systems to managing dual tax obligations and currency risks, US expats face a unique financial landscape that demands careful, coordinated planning.
This article explores the three core pillars of retirement saving for US expats — workplace pensions, Social Security, and private income — and explains how to structure your savings to achieve long-term financial stability wherever you choose to retire.
Pillar 1: Workplace Pension Plans
For many expats, employer-sponsored pension schemes form the foundation of retirement saving. These can include both foreign and US-based plans, depending on where you work and your employment status.
Foreign Employer-Sponsored Pension Plans
If you work for a non-US company abroad, you may be eligible to participate in a foreign pension or retirement savings scheme. These plans often include both employer and employee contributions, and may provide local tax advantages or matching incentives.
However, the US tax system does not automatically recognise foreign pensions as tax-deferred. The local tax benefits may not apply from a US perspective unless covered under a bilateral tax treaty. This means income inside the plan could be treated as taxable annually under US law.
Because of this, it’s critical to:
- Consult both a local tax adviser and a US expat tax professional.
- Review how the relevant US tax treaty treats pension contributions, growth, and withdrawals.
- Understand whether your host country taxes pensions during accumulation or only at distribution.
One advantage of maintaining a local pension is that distributions will typically be paid in local currency, reducing exposure to exchange rate volatility if you plan to retire in that country.
Contributing to US-Based Accounts While Abroad
If you maintain taxable US income, you can still contribute to a US 401(k) or IRA while living abroad. However, eligibility depends on how you report your foreign income:
- Foreign Earned Income Exclusion (FEIE): If you use the FEIE to reduce your US taxable income to zero, you generally cannot contribute to an IRA or 401(k).
- Foreign Tax Credit (FTC): If you instead claim the FTC, you may remain eligible to contribute to US retirement accounts.
Be aware that the tax benefits of US IRAs may not be recognised abroad, and in many countries they are treated as standard investment accounts for local tax purposes. This is especially true for Roth IRAs, which most foreign jurisdictions do not classify as retirement vehicles.
If you ultimately plan to return to the US, maintaining US-based accounts can still make sense for stability, cost efficiency, and simplicity. The key is to coordinate contributions and tax reporting across both systems.
Combining US and Foreign Pensions
In many cases, the most effective approach may be diversification across both US and foreign pension systems. Doing so can help maximise tax benefits in each country, provide income flexibility in multiple currencies, and reduce risk from changing tax rules.
Before making decisions, seek guidance from a cross-border financial adviser who understands how to integrate both US-qualified and foreign pension assets into a cohesive long-term plan.
Pillar 2: Social Security and State Pension Benefits
Social Security is another cornerstone of US retirement income, and the good news is that American citizens can generally receive US Social Security benefits while living overseas.
US Social Security for Expats
If you’ve made sufficient contributions (typically 40 credits, or about 10 years of work), you can receive Social Security payments whether you reside in the US or abroad — though certain countries have restrictions or may require you to have a US bank account for direct deposits.
Spousal and survivor benefits are also available, but eligibility can depend on residency, citizenship, and bilateral agreements.
The Windfall Elimination Provision (WEP) — and Its Repeal
Historically, Americans who also received a foreign pension were subject to the Windfall Elimination Provision (WEP), which reduced US Social Security benefits if you earned a foreign pension from work not covered by US Social Security.
However, this is changing.
On January 5, 2025, the Social Security Fairness Act was signed into law, which eliminates the WEP once fully implemented. This means Americans receiving both US and foreign pension benefits will no longer face reduced Social Security payments, making it easier for expats to integrate benefits from multiple systems.
Totalization Agreements
If you’ve divided your career between the US and another country and haven’t accumulated enough credits to qualify for benefits in either system, you may benefit from a Totalization Agreement.
These bilateral arrangements allow workers to combine contribution periods from both countries to qualify for Social Security in one or both systems.
Currently, the US has 31 active Totalization Agreements, including with the UK, Canada, Australia, Germany, France, Spain, and others. However, many countries — particularly across Asia, the Middle East, and parts of Latin America — do not have such agreements.
Pillar 3: Private Investment Income
The third pillar of expat retirement planning comes from private savings and investments, including:
- Brokerage accounts and mutual funds
- Dividend-paying equities and bonds
- Rental property or other real assets
- Inheritance or business income
These personal assets often bridge the gap between pension income and lifestyle needs in retirement. However, for expats, managing them efficiently requires extra care.
Avoiding Tax Traps and Compliance Issues
The US tax system subjects citizens to worldwide taxation, even when living abroad. This means income and gains from foreign investments may trigger complex reporting and tax obligations.
One major pitfall is the Passive Foreign Investment Company (PFIC) rule. Many non-US mutual funds and ETFs are classified as PFICs by the IRS, which can result in punitive tax treatment and complicated annual reporting.
To stay compliant and avoid excessive taxation:
- Use US-domiciled funds or exchange-traded funds (ETFs) where possible.
- Avoid investing directly in foreign collective investment vehicles unless advised by a cross-border professionals.
- Be aware of local tax obligations on US-sourced income such as dividends, capital gains, or rental income.
Additionally, both the US and many foreign jurisdictions require foreign asset reporting, such as FATCA Form 8938 and FBAR (FinCEN Form 114). Failing to report correctly can lead to severe penalties.
Diversification and Currency Risk Management
A robust private income strategy also involves diversifying across asset classes and currencies. For example, holding part of your portfolio in local currency can help offset the impact of exchange rate fluctuations on your retirement income.
At the same time, it’s important to balance liquidity, yield, and tax efficiency. A professional adviser familiar with cross-border investment structures, such as offshore bonds or tax-compliant life assurance wrappers, can help align your private investments with your residency status and long-term objectives.
Building a Strong Expat Retirement Strategy
By combining all three pillars — workplace pensions, Social Security benefits, and private income — US expats can create a retirement plan that is diversified, resilient, and tax-efficient.
Each pillar interacts differently depending on where you live, how you earn, and where you plan to retire. With professional cross-border financial advice, you can optimise contributions, minimise tax drag, and check that your savings are protected under both US and local law.
Speak to a US Expat Retirement Professionals
At Blacktower US Expat Financial Planning, we help Americans living abroad coordinate their global retirement savings across multiple systems — from Social Security and IRAs to foreign pensions and international investments.
Wherever you live and wherever you plan to retire, our advisers can check your financial future is secure, compliant, and optimised for cross-border success.
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This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
Investment advice and investment advisory services offered and provided through Blacktower Financial Management US, LLC. This communication is for informational purposes only based on our understanding of current legislation and practices which are subject to change and are not intended to constitute, and should not be construed as, investment advice, tax advice, tax recommendations, investment recommendations or investment research. You should seek advice from a professional before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.