Planning Two Retirements on One Income

Part One: Planning for Two Retirements in a One Income Family

This is Part I of the Retirement Planning for Trailing Spouses series written by Foreign Service spouse and professional financial planner, Hui-Chin Chen to explore planning techniques for trailing spouses under different employment scenarios: self-employed, employed in local economy, and telecommuting for a U.S. employer.

Moving overseas is not easy. Moving overseas and suddenly becoming dependent on one spouse’s income is doubly difficult. While most of us will likely have calculated how this arrangement will impact our family budget, we often fail to consider what this means to our own retirement savings.

In the US, retirement savings are mostly tied to employment. We pay a percentage of our salary toward Social Security and Medicare. We may participate in company pensions. Our employer may provide 401(k) accounts to which we can contribute pre-tax income-and-Profit-Sharing-Plan-Contribution-Limits) and sometimes receive matching contributions.

When we give up our careers to go overseas with our spouses, we usually stop saving for retirement in all sorts of ways, and yet we rarely think about it.

The fact is that a lapse in retirement savings will have long term consequences. Like it or not, many of us have or will experience an extended period living on our spouse’s income when we follow them overseas. How can we continue to save for our long term financial security even during periods in which we are not actively contributing to household income?

1: Review your spouse’s retirement contribution

Many of us, when living the two-income lifestyle in the U.S., only focus on each partner’s take home pay and treat any sort of paycheck deductions, such as 401(k) and pension contributions, as something out of our control. Moving to one income means that you are now working as a team. Make sure you understand how much your spouse is contributing to his retirement accounts at work. If there is a surplus in your household budget, consider using it to increase that contribution to make up for the loss of a regular contribution from your job.

(If your spouse does not contribute to or receive retirement savings through employment, you should sit down and decide on a percentage of your income for long term savings, preferably with the help of a financial planner.)

2: Contribute to your own IRA

If you file a joint return with your spouse, each of you can contribute to your own IRA based on your spouse’s income. The contribution can either be tax-deferred in a Traditional IRA, or grow tax free in a Roth IRA. The contribution limit for 2014 is $5,500 per person, or $6,500 if you are age 50 or older. An IRA allows you to save more in a tax-advantaged way even if your spouse cannot make additional retirement contributions in an employer-sponsored plan to make up for your share.

Furthermore, sharing one income means you are more likely to qualify for Roth IRA contributions. You can contribute 100% of the $5,500 if your combined Modified Adjusted Gross Income is under $181,000 in 2014, and 0% if your MAGI is above $191,000. Roth IRAs are particularly beneficial for younger people because the balance of the account grows tax free for a much longer period of time.

(However, if your spouse does not have taxable compensation, such as when you are qualified for Foreign Earned Income Exclusion, then you will not be able to contribute to an IRA that year.)

3: Roll over your old 401(k)s

If you have 401(k)s from past employers, consider rolling them over to a Traditional IRA account. 401(k) accounts sometimes charge much higher administrative fees and sometimes limit investment options to funds that charge high management fees. By transferring the balance to an IRA, you may reduce costs of investing substantially, translating into bigger savings in the long term.

(Consult a tax professional about your potential rollovers to avoid some of the common mistakes.)

4: Invest in your human capital

After all is said and done, “human capital” might be the most important investment you can make for your retirement. At first glance, this investment may look more like an expense than savings. You may have to pay for your own training courses or certification programs so you can stay current in your field. You may work long pro bono hours. You may even need to pay a large amount of tuition in order to get a post-graduate degree. Would these investments really pay off?

My short answer is “yes”, as long as you prepare yourself to increase your income earning potential in the future. You may need to do more research on what career fields or industries are a good match for you and worth your investment. Do not feel pressured to save a few extra thousand dollars in your IRA when you could have used that money to make yourself employable or start your own business, which will contribute much more to your retirement in the long run.

I know first-hand how an investment in career change can enable you to embrace a globally mobile lifestyle. Thanks to the partial support of a professional development program, I pursued my financial planning studies online, passed my certification exam, and attended a residency program at which I met my current business partner. As a result, now I run my own business overseas and am able to share the financial planning knowledge with you! None of this would have happened if I had skimped on the few thousand dollars of investment in myself. Even if your finances are tight, don’t limit yourself. Start searching for scholarship opportunities!

Hui-ChenHui-chin Chen is a financial planner and co-owner of Pavlov Financial Planning. For the last ten years she has worked in the U.S., India, Taiwan, Mexico, and now in New Zealand, both independently and as a “trailing spouse.” She shares personal finance knowledge and financial planning topics for globally mobile professionals on her blog: Money Matters for Globetrotters, and welcomes any feedback or comments at

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