Taxes and the Magical 4%

[Owen` 2]

I don't get my state pension for the best part of 14 years so it doesn't affect me at the moment. My works pension is increased in line with inflation. This year's increase was all of 2.3% or less than half the rate of inflation in Thailand. Fortunately, my works pension only makes up around a third of my total income.

 

Thanks, Alan.

 

At first glance months ago I thought there was no need for US guys to know what UK guys are talking about -- terminology wise -- and vice versa. But as discussions have continued it has become clear (to me at least ) that some underlying ideas get covered up in the terms used and they can be be useful to know.

 

Works pension vs state pension. I presume the "state pension" is something from the UK govt that shows up at age 65 or something like that? The "works pension" would be pension paid by the company you worked for long enough to qualify to receive it?

 

Equiv US terminology would be . . . state pension = Social Security. "Works pension" would be company pension (if I am understanding it). Some weird variations in the US, too. People who worked for the US (or regional/local) govt as civil servants get a civil service pension that is a combination of "works and state". They never get Soc. Sec. Their pension can start about age 55. The usual Soc Sec age is 65 (there is a provision for taking a reduced pension at 62, and most do take it), though those ages are now sliding upwards.

 

US "works" pensions are either disappearing or being deCOLAed. Citigroup/Citibank announced something like that just today to reduce their future pension expense.

 

A lot of guys take "early out", meaning they leave their company at age 50 and get the company pension then to live on (plus access to company group health plan) and then it is augmented by SS at age 65.

 

A thought occurs here relevant to the thread topic . . . there are some BMs who have mentioned getting medical expense reimbursement by whatever pension plan they are on. I recall reading of US military benefits funding medical and I think there was talk of somehow UK NHS being involved. In the context of this thread's subject, I believe those guys need not worry about Thailand taxes on that money. It will come into Thailand, true, but it would not seem to fall into any taxable income category in their list.

Edited November 4, 2006 by Owen`

[Eneukman 1]

Basically correct, Owen.

 

The UK state pension is the same as the US Social Security.

 

My works pension is the same as your company pension. The term company pension is also used in the UK. The only difference is that most companies don't have a company health plan due to the existene of the National Health Service. Some companies do, however, arrange private health coverage for senior staff - though some contribution to the cost of this has to be paid by the employee.

 

When I retired, I had the option of taking a reduced pension at the age of 50 or leaving it and getting a higher pension at 60. I elected to take a reduced pension - I might not live to be 60!!!!! Also, I wa given the chance of taking a tax free lump sum. I took up this offer (further reducing my pension) but rekoned that I could make more in the longer term by investing this sum on the stock market.

 

Alan

[Owen` 2]

My works pension is the same as your company pension. The term company pension is also used in the UK. The only difference is that most companies don't have a company health plan due to the existene of the National Health Service. Some companies do, however, arrange private health coverage for senior staff - though some contribution to the cost of this has to be paid by the employee.

 

US employees contribute some portion of the health plan insurance premium, too. Varies from company to company, but all companies are in the process of shifting more and more of the premium burden to the employees.

 

Mild difference here with the UK on this. I can see how, with the NHS, you can offer private insurance for senior staff because you can tell the shareholders that the NHS queues are too long and your senior staff are too valuable to be waiting in them.

 

The US can't do that. Everyone waits in the same queue (which isn't very long compared to many countries). And given equal queue length you could never create a "premium health plan" that provides "better" health care for senior staff. That story would be banner headlines in newspapers everywhere and that company would be sued out of existence for whatever reason greedy lawyers could imagine. About the closest thing that comes to this is a program I've heard a few companies do of sending senior executives for some hyper thorough physical exam each year. The exam does tests not typically done (unless other tests suggest they should be) for the casual patient in a hospital.

 

But that's tests only. No superior treatment. Lawyers can destroy companies faster than a recession.

 

When I retired, I had the option of taking a reduced pension at the age of 50 or leaving it and getting a higher pension at 60. I elected to take a reduced pension - I might not live to be 60!!!!! Also, I wa given the chance of taking a tax free lump sum. I took up this offer (further reducing my pension) but rekoned that I could make more in the longer term by investing this sum on the stock market.

 

This is why US folks grab their reduced SS at 62 vs waiting to 65 for the full amount. People are now getting more clever and using web calculators to do longevity predictions based on their parent's age at death and other risk factors. The SS system is getting hit by this. The people waiting are those who are going to live longest. The system wasn't designed to address smart decision making. It was designed around average life expectancy.

 

You did good taking the lump sum. I don't think anyone knows for sure they'll do great in the market, but odds are your company will change the rules on pensions sometime in the next 10-15 yrs and you would have gotten less. By taking the money now, they lose control over you.

Edited November 4, 2006 by Owen`

[chinavacation 0]

All the tax information I've read in this thread for USA expat reads as if you are still living in the USA. If you live outside the US for a complete tax year, you get tax credits for that. If earning less than 30,000 you would be paying very little in taxes. Also, if you invest and earn income outside of the US, you may owe no tax on the income at all.

 

As an employee, your allowed to earn $70,000 before you have to pay US tax. But if you are self employed (retired qualifies), that amount goes up to $130,000. The amount must be for money earned outside the USA. This does not take into account taxes for the local country you earned the money in. As an example, the Bank of New Zealand is paying around 7% interest on $50,000 invested right now, but you have to pay a 10% investment tax, but no US tax if you earn under the total of the limits.

 

Please, no one take any advice from anyone on this board, including me. All you have to do is email or call the IRS and they will be happy to give you the exactly correct information.