Dividing your substantial $4.1 million savings to relocate overseas upon retirement? Contemplating halting contributions towards your 401(k) plan?
Retiring abroad is a significant decision that requires careful planning and consideration. One of the key aspects to consider is the management of finances, including currency conversions, fluctuations, and tax implications.
Financial experts, such as Brett Bernstein, CEO and co-founder at XML Financial Group, emphasize the importance of having a substantial 401(k) balance. Bernstein believes that there's no such thing as having too large a 401(k) balance, as it provides a solid foundation for retirement.
However, retiring abroad also comes with its financial pros and cons. On one hand, costs associated with retiring abroad, such as visa requirements, foreign taxes, and travel expenses, could be less than anticipated in countries with a lower cost of living. On the other hand, frequent travel to the U.S. might result in a financial strain.
Aaron Cirksena, founder & CEO of MDRN Capital, cautions savers who have accumulated a lot of money to consider the downside of halting retirement plan contributions. He advises that stopping contributions could mean having to stretch savings further if retiring at 57, as the typical 57-year-old had $185,000 in retirement savings, according to the Federal Reserve in 2022.
Keeping up contributions, even at a reduced level, can make sense when retiring abroad due to potential surprise costs. Life can throw retirees many curveballs, regardless of where they live, and continuing to contribute toward retirement can help cover unexpected expenses.
If your employer is still offering a match, stopping 401(k) contributions would mean missing out on free money. Additionally, 401(k)s impose an early withdrawal penalty for withdrawals before age 59½.
In some cases, retiring in your 60s and stopping 401(k) contributions during your last few years of work is less risky. Financial advisors or retirement planning experts recommend continuing a pension plan after the age of 57.
In countries with higher costs of living, it might be more beneficial to focus on a 401(k) account. However, in countries with lower costs of living, your money may go further if you focus on a taxable brokerage account instead of a 401(k).
Ultimately, retiring abroad (or retiring in general) involves many unknowns, and making a smart decision for the future is key. Bernstein suggests saving as much as possible for the future without denying oneself enjoyment in the near term. It's all about striking a balance between planning for the future and living in the present.
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