If you are one of the many Americans who are considering leaving the US for a life abroad, there is one crucial thing to get right before you do. Before you board that one-way flight, you want your financial arrangements to be secure and accessible from wherever in the world you will be.
The commitment to leave the US and make your home abroad is a big deal. American banking regulations have added significant complexity to how you as an American living abroad will be able to manage any money you leave behind in the States. If you have no sizeable savings, then this won’t be a problem for you. But for many Americans looking to retire overseas, or even Americans who opt – mid-career – to take a crack at a digital nomad existence, if they have a 401-k and some savings, there will be some decisions to make. The first decision will feel like one that was already made for you.
When you leave the US, you can’t take your own money with you
What I discovered after I had committed to settling abroad was that US banking regulations made it prohibitively expensive to take my savings with me. While I could take my savings without penalty, I could not take my 401-k or my existing IRA without paying taxes and penalties. It soon occurred to me that my financial assets in the US were not entirely my own – a bit like how you feel about your house while you pay off the mortgage. The US government won’t allow your money out of the country as long as there are taxes to collect on it at any time in the future.
In theory, you could pay all taxes and any related penalties, but this would significantly reduce the total value of your capital and consequently reduce its earning potential. And to add insult to injury, you may pay more in taxes now as a recent higher earner than you would in the future (the hope of every retiree with a fat 401-k). There is no appeal in that.
And doing this – a kind of worst-case thinking exercise – presents another hurdle. By liquidating all my assets and paying all taxes and penalties, I risk reducing my total capital to an amount that would preclude me from access to the financial services I need as an American living abroad.
As I dug deeper, with desperation setting in, I quickly saw that it would be a thorny problem to overcome.
This is important, so you need to get it right
The way I tackled this was to break it down into simple components, almost like a decision tree. There were so many variables that seemed to increase as I scoured the Internet, made some phone calls, and visited a few banks where I lived (Chicago). I lost plenty of sleep over it.
Before I explain how I cracked this nut, a little of my backstory might be helpful, in case some of it applies to you.
When I left the US in 2020, I was 55, and I had no immediate plans to work again. Since the capital I had would have to last me longer, I needed to preserve as much of it as I could. I could not afford to take the tax and penalties hit. For this reason, I decided that I would leave my savings in the US. As I mentioned earlier, this was a decision that made itself.
The next major challenge was that, when I left the US, I would no longer have a US mailing address or telephone number. This has proven to be the single most difficult aspect of being an American living abroad. The easy fix for this – and this will probably be true for many Americans who move abroad – is to maintain a physical address and telephone number in the US. You might own a property, which makes it easy, provided someone is checking your mail, or you might lean on a friend or family member.
I sold up. And I preferred not to ask this favor of my friends or family. One thing to keep in mind is that this is not a full-proof solution. There are a couple of reasons for this. First, if your bank discovers you are residing permanently outside the US, they could close your account (this is what I meant earlier about ensuring your finances are secure). Since they send new debit and credit cards by mail, your address must be one where you can receive these mailings. Mail forwarders don’t work – they have algorithms that identify these addresses. Another reason, and the hardest to circumvent, is that your spending activity abroad will be monitored and subject to frequent anti-fraud controls. Imagine having your debit card stop working (not to mention the fees) or being unable to make online purchases with your credit card.
Another issue relates to the total amount of your capital. This can have an impact on which bank will consider your application as an international customer. It’s a tricky problem, because, without a physical presence in the US, the number of US banks available to you becomes severely limited. (Hint: If you ever want to leave a bank and don’t want the hassle of a sales pitch to convince you to stay, tell them you no longer live in the US. They close your account in minutes.). But there are a small number willing to provide financial services to Americans living abroad.
The limiting factor here is that all of them to my knowledge have a threshold amount of capital for you to qualify. Even banking is a dynamic business, so keep in mind that this could change at any time. But a rough figure to have in mind for the capital you would be investing is around $1 million. For many people this will be a lot of money to pull together to commit to one bank. Even if you have this kind of cash, you might not want it in one place (you may feel more comfortable, for example, having a portion in a bank in your new home country, or it might even be a requirement to receive a visa).
But let’s deal with the main hurdle first. Which US “banks” welcome American clients with foreign addresses? I know of one. Charles Schwab (the brokerage, not the affiliate bank). I have a relationship with Schwab. In my experience, any other banks claiming to provide services to Americans abroad require a US address and telephone number (often the need for the phone number isn’t explicit).
If you contact Schwab and meet their threshold requirements to be a client, great. You’re done. All of the benefits, which I describe below are available to you. If not, there is a work-around, which proved to be the hardest nut to crack. That is, you can still gain access by using a financial adviser.
At the time of my ordeal (late 2019), strenuous online searching unearthed only one financial adviser dedicated to Americans living abroad. This was a small company based in Madison, WI, which later became part of Kansas City-based Creative Planning. At the time of this writing, I continue to work with them.
Here’s what Creative Planning did for me in my hour of need. They walked me through the process of combining my assets into two pots, an IRA and personal savings. My one 401-k was converted to an IRA. I liquidated my US and UK investments and combined them into the savings pot. The proceeds from the sale of the Chicago home went to the savings pot, as did all final salary and company stock divestment payments. Cash to fund the international move and the first year abroad (including buying a car) remained in my existing bank account (I kept the account while I had mail forwarding in place, knowing that my deadline was the expiration date on my debit card).
Once all the money was collected, CP provided me with their investment plan to achieve my goals. They recommended using Schwab and helped to set me up as a Schwab Alliance client, with CP as an independent advisor. This resulted in the following:
- A Brokerage account, which contained the bulk of my savings
- An IRA account, combining the 401-k and an existing IRA, and
- A Personal account, which contained a small portion of my savings in cash and stock (which I purchase without guidance from CP)
As part of the personal account, I received a debit card (Visa), which works exactly as any bank debit card (Schwab’s banking services provider is the Bank of New York Mellon). I can withdraw cash from any ATM in the world. Although I pay the transaction fee, Schwab reimburses this amount promptly and in full. Schwab does not, however, offer a credit card.
Creative Planning charges fees as my adviser, and it is not cheap. But I believe the financial advice and general support are worth it. Whenever there is a problem, quick resolution is a phone call or email away. This kind of peace of mind is valuable when, basically, all your money is in the US and you’re somewhere else.
The other financial tools that make life abroad easy
Once I had the banking conundrum solved, I could address the issues that were more about convenience.
The first was an inconvenience of my own making. I did not want to have a bank account in the country I had chosen to live in – Croatia. I also wanted to have a cash management system that helped me budget my spending – that is, I didn’t want to use the Schwab debit card for all of my transactions. And I didn’t want to live abroad and have only one method of card payment. Not only was this an issue of payment security, it was also one of convenience. American cards will always need to be inserted into (versus tapped on) a terminal and require a PIN. I wanted a card without that hassle.
I found the WISE Mastercard. It was perfect for my needs at the time. WISE is UK-based. It offers highly competitive currency exchange rates with almost non-existent transaction fees, making them one of the best, if not the best, providers of foreign exchange services.
The way it works is simple. You receive a WISE Mastercard. It isn’t a debit card but a payment card (you must have money on your account). Here is where it gets interesting. On your card you can maintain several accounts, each of which has the BIC and IBAN codes of a conventional bank account, with nine currencies to choose from (I have USD and EUR, for example). You can pay yourself or you can have others pay you directly into these accounts. And when you make payments with the card, if you pay in Euros, for example, the amount will be paid from your EUR account. If the amount due is EUR 100 but you have EUR 90 on your account and money on your USD account, it will take the additional EUR 10 from your US account (instantly making the currency exchange) to complete the payment.
In most cases, it is possible to establish a link between WISE and your bank (I had this while I still banked with Wells Fargo). When you need to top up your WISE card, you can complete the transfer and see the new balance within minutes. Unfortunately, this is not possible with Schwab. It might be because the Bank of NY Mellon acts an intermediary. The solution is a little advance planning. Initiating a payment to WISE from Schwab takes a day or two to be received.
The last thing I’ll mention about WISE is that I couldn’t imagine a digital nomad anywhere on this planet going without one. You can work anywhere in the world for a client based anywhere in the world and receive payment from the client on your WISE card. There are too many currencies available (over 40 at the time of writing) to list here. Go to their website and see for yourself.
The second was a credit card.
I used one of the American ones I had until it was blocked for possible fraudulent activity. This is the biggest issue with using an American credit card abroad. I understood the risk. But I wanted to keep an airline Mastercard alive to collect points. I was finally frozen out by a web purchase that went wrong. The anti-fraud department demanded an American telephone number where I would receive a code to grant access to my on-line account and resolve the issue. Until then, I had only limited access, allowing me to make payments on the balance. While I could not use the card, all payments previously set up on the card were still honored. I moved these to the one credit card I had left and allowed this card to expire.
The one card left standing was American Express.
I have only good things to say about American Express. This is one of the most customer-orientated and professional financial services companies I have ever experienced. After the hell I went through with trying to organize basic banking in the US before I left and the continual aggravations of coping with credit card anti-fraud policing, American Express was like a ship finding me lost at sea. Every contact with them was cordial, efficient, and effective.
First, American Express is a truly international company. Unlike the banks that claim to offer international services and then backpedal by insisting on a US address and telephone number, AmEx changes your US address and phone number to your foreign ones just as simply as if you had only moved down the street. You aren’t terrorized by anti-fraud controls at every transaction. And, they take extra precautions to ensure you are (or will be) where you say you are before they mail out your new or replacement card.
My AmEx is a Hilton Honors one. Hilton has a large network of properties in Europe, and I like their frequent stay program. So it’s an additional bonus to having an AmEx card.
The one catch, as most people know, is that AmEx isn’t accepted everywhere. But there is a work-around to this. PayPal. If you make American Express your preferred method of payment on PayPal, then you can use PayPal for purchases where it’s available, effectively using your American Express card when it might otherwise not have been possible. It’s not a game-changer, but it does help to extend its use.
And that leaves PayPal as the final element in my financial platform. I don’t rely on it as I do the others, but it works well for making online payments and payments to individuals who have PayPal accounts, such as friends who do nice things for you like organize the annual visit to Oktoberfest, or freelancers who might work for you. It’s expensive compared to WISE, for example, but it also has a far more extensive reach, so it remains essential.
I got it right
My financial platform consists of what I believe to be the three best financial services companies available to Americans living abroad. American Express, Charles Schwab, and WISE provide me total peace of mind regarding money. I receive no benefits, monetary or otherwise, for my endorsement. PayPal, as a kind of supplementary pillar to this platform, is the fourth.
I lived happily with this arrangement for the first three years abroad. When I divorced and moved from Croatia to Austria, I opened an account with a local bank (Erste Bank). This was a matter of convenience. In Austria, it is easiest to deal with health and car insurance payments, parking and speeding tickets, and similar obligations from a local bank account. This has reduced my need for the WISE card at the moment, but I see potential uses for it in the future. It is still in my wallet. The Austrian bank also gave me a VISA credit card with a respectable credit limit, which is really just an additional layer of credit security.
While everything I covered may not answer all of your needs, I suspect it would address the majority of them for many. If you weren’t able to find an answer here to an issue you have, get in touch. I might be able to help you or point you in the direction of someone who can. In my experience, there was no single source of reliable information that provided me with the answers I needed before I left the US (although Creative Planning came close). I hope this article goes some way to fill that gap. If it doesn’t, let me know.