Retirement and Tax Planning – Unlock Some Welcome Relief

A little retirement and tax planning will go a long way to boosting your retirement investments. But beware, tax is a mine field of legislation, emotion and political manipulation.

• Firstly your macro tax environment and how your investments and wealth are distributed internationally.
• Secondly the micro-situation with regard to minimizing the tax obligations within your tax residency country (if you decide to have one!).

Since the Middle Ages wealthy people used trusts to protect their assets. More recently trusts have been used together with low tax, and tax-free countries, to minimize, defer or distribute tax obligations.

People considering retirement who do not believe they will have enough after tax income in the country where they live (or don't believe they are getting value for money) are now starting to look at other options to protect and extend their hard earned savings.

If you live in a country which has a residence-based income tax regime (South Africa, New Zealand, United States) you are taxed on your world wide income. So even if you earn no income in the country where you live the government will take a share of your worldwide earnings.

One way to escape from this regime is to adopt a "PT" status; meaning be either a permanent tourist or a permanent traveler. The result is the same: a "PT" is someone who has no fixed base… never actually establishing tax residency anywhere.

As the normal definition of a resident for tax is, anyone resident in the country for more than 183 days in a 12-month period, a PT will spend up to 183 days in one country and then move on to another country.

This could result in living an adventurous, nomadic lifestyle financed by your tax savings!

In countries with sourced-based tax systems (like the UK) provided you don't earn any income in that country you don't pay tax.

Careful consideration and planning of all the tax implications of retirement and tax planning could make a significant impact on the the amount of money you retire with and the amount you have to live on.

Taxes are often used for political manipulation resulting in very skewed contributions from individuals. For example in the US where only about 50% of individual taxpayers actually pay tax, or a country like South Africa where you have 22 million voters and 5 million individual taxpayers!.

The other tax concern is that taxes can be changed at the whim of politicians ... what is favorable for you today may be unfavorable tomorrow.

Retirement and tax planning will become increasingly important as taxes become more and more onerous to meet the increasing state social and health obligations.

Tax Strategies

Retirees may receive income from a variety of sources, including social security benefits, and distributions from pensions, annuities, IRAs and other retirement plans.

Through careful retirement and tax planning, managing the amount and timing of withdrawal amounts, you can keep your taxes as low as possible by using some tried and tested strategies:

Take full advantage of deductions and personal exemptions.
Together, these represent tax-free income. Reducing tax by offsetting taxable income with mortgage payments, real estate taxes, and medical expenses.

The above are a few selected examples for retirement and tax planning but taxes and rebates are handled differently country by country. In each case individual advice will have to be obtained and evaluated. The tax implications may be further complicated by having a number of options.

Ensure that you get objective and complete advice … a second opinion is often the best course of action!

If you are resident in the US the publication "Tax Planning for Retirees" provides comprehensive information on tax. It includes sections on elderly and disabled tax relief, estate and gift taxes on retirement benefits and, retirement benefits of foreign retirees.

There are a number of publications regarding international tax but as this can be very complex my advice is to consult an international tax expert.

Be warned retirement and tax planning is a very complex exercise … and the one man you don't want to cross, or make cross, is the tax man.

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