How to Save for Retirement While Working Abroad


*Update 5/24/2010*

A reader recently e-mailed me and told me about her troubles opening up an account with Vanguard since she was a foreigner working in Singpaore. It appears it is incredibly difficult for Americans who live abroad to open taxable accounts with brokerages and banks.

I’ll be updating this topic this week with new information. I apologize for the misinformation below.


On Thursday we took a look at why Americans working abroad can’t invest in a Roth IRA and how to avoid double taxation on foreign income.

We learned you don’t have to pay taxes on your income while working abroad. Great! But how do you save for retirement without access to tax-deferred accounts like 401ks and IRAs?

Unfortunately, you’re hands are tied as a foreigner working abroad – at least compared to our friends in America with access to 401ks and IRAs.

You still have the option of investing your money in taxed accounts in America through a broker like Vanguard, Schwab, E*trade, or Zecco but you don’t receive any tax benefits and have to pay taxes on your gains and dividends.

These accounts don’t require you to be in America so you’re more than willing to set one up to start your retirement savings.

Retirement seems far away, but the sooner you start, the easier it is to properly save. Don’t let the absence of tax-efficient accounts scare you away from starting your retirement savings.

A taxable account can be a great start for your money and then when you eventually return home, you can take your progress and continue on with a IRA or 401k.

Here’s what you should know before you invest, and some options if you choose to take the plunge into investing for retirement.

Look Into Your Crystal Ball

It’s important you have a plan with your money before tying it up in stocks or index funds. A tanked market can really do a number on your short-term savings plans, so it’s better to be safe than sorry when it comes to money you’ll need in the next decade or so.

Here’s some questions to ask yourself before you start investing while abroad.

Do you need the money in 5 or less years? Look at your short and long-term plans. What are you planning on doing if or when you return home? Are you going to go back to school soon? Want to move out on your own, or are you ok with moving back in with your parents while you get your American feet back.? If you don’t have a clear answer for these question, then keep your money out of the stock market until you find some clarity in your immediate future

What’s your debt situation like? If you’re young and carrying credit card debt, that should be your first financial priority. If you try to invest and carry credit card debt you won’t get anywhere fast. Pay off your consumer debt with your foreign income and then you can move on to preparing for the future with retirement savings.

Student loans? Money in the stock market is fairly liquid – meaning you could have access to it by selling off stock, but it’s vital to have enough money to cover your bi-weekly or monthly student loan payments. Defaulting on your student loans is an ugly situation and one that should be avoided at all cost if there’s any concern of it happening.

Emergency Fund? Jobs abroad are just as volatile as jobs in America. A healthy emergency fund of at least 3 months living expenses will allow you to sleep peacefully in case your job happens to be terminated for whatever reason. Depending on your living situation in America, the size of the emergency fund can vary, but it’s wise to start one.

At first, try saving $100 a month and grow it from there. Like student loans, don’t ignore an emergency fund and move on to taxable investing. That’s like skipping middle school and hoping you’ll be okay in high school. You may survive, but every day could be a potential disaster waiting to happen.

How long will you be abroad? The length of your stay abroad will affect how you view retirement savings. If you’re only going to stay abroad for a year or less, don’t worry about taxable investing for retirement savings. You’ll be back soon and you can start savings using a 401k or Roth once you (hopefully) find a job.

If you’re looking to stay more than 2+ years then you need to consider your retirement savings options. It’s easy to do nothing and say you’ll worry about it later, but waiting too long to invest will kill your chance to excessively grow your money with compound interest.

If you’ve confidently answered all of these questions about your money and life and you have some excess cash and would like to get started, then taxable investing is your best choice for retirement savings while abroad.

Investing Options

If you’re new to investing, I along with anyone in the personal finance community, would suggest reading some books first. I have a couple of books listed on the Foreigner’s Finances Amazon store (affiliate) that I read when I first started thinking about investing. It’s vital you know what you’re getting yourself into before you go and make ignorant investing mistakes like I did.

Here are some options you have when you’re looking to invest.

Index Funds

Index funds are best for the passive or novice investor. My retirement savings are in an index fund and I feel comfortable knowing the fund is spread out across thousands of different stocks – negating risk.

These funds require a higher minimum investment (sometimes $3,000) but there are some options like the Vanguard STAR Fund which starts out at $1,000.

Individual Stocks

Buying individual stocks holds more risk than an index fund since a company could fail any day and your investment would be lost. On the flip, buying individual stocks can also provide a higher reward.

If you decide to go this route, choose what you know. Don’t pick a stock because you heard your dad talking about it or you saw it on a CNBC stock ticker once. You need to know the company inside and out before you invest not only your money, but your future in the company.

Lending Club

I’m new to Lending Club this year, but I’ve loved my time with the company.

At LC you can make loans to other people who are in need, and they pay you back over a certain amount of time . LC takes 1% of your return, but their average return is 9.65%!

So far Lending Club has helped fund over $91,000,000 in loans so they’re a trustworthy company that is doing a good thing for people.

Check out Debt Free Adventure’s extensive review for more info on investing with Lending Club.

If you’re interested in signing up for an account, use this link (Lending Club) and you and I will both receive $25.

Savings Accounts Are Always the Safest Bet

If you’re unsure about taxable investing, it’s wise to steer away.

If you’d like to start properly saving for your future while abroad, then periodically sending money to your home country to put in savings accounts or CDs is your best bet.

A lot of people will say, “the dollar’s weak, keep your money abroad!” In reality, they have no idea where the dollar will be tomorrow, next month, or 3 years from now.

Every 3-6 months send money home to hedge against the fluctuating exchange rates. You won’t gain 24% in a year like the yen got on the dollar over last year, but you won’t be on the losing end of it either (losing 24%).

ING Direct has my vote for best savings account.


It can seem like a lot to handle, but there are a ton of resources available to help guide you through the process. Ask questions, read everything you can, and make a decision. Waiting 5-10 years could cost you hundreds of thousands of dollars in your life.

How do you manage retirement savings while working abroad? What suggestions do you have for those looking to get started?

Photo: Horia Varlan


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