Retirement and Tax Planning – Unlock Some Welcome Relief

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

Initially there are two tax situations you should consider.

  • 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 have used trusts to protect their assets. Although 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 like a growing number 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 (like South Africa, New Zealand or the US) 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 by either being 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) you only pay tax on the income earned in that country. 

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

Taxes are often used as political tools 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 tax laws can be changed at the whim of politicians ... so 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 welfare 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 loan payments, real estate taxes, and medical expenses.
  • Accelerate retirement distributions when you have excess deductions.
    If your standard deductions exceed your taxable income, consider withdrawing more retirement funds than you need. By accelerating income when you have a zero or low tax rates, you'll potentially avoid paying more taxes in a future year.
  • Take all credits for the elderly.
    Special tax credits usually apply to taxpayers age 65 or older. But qualifying for these may take careful planning for your gross income to fall beneath certain limits.
  • Maximize tax-free income.
    Get the maximum deduction in capital gains when, for example, selling a primary residence. Also, interest earned from certain sources may be interest free.

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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