Retire-To-India plan

My plan is to consider retirement in two phases.

  • In our early fifties, we hope to have enough savings/investments to allow us to retire to India. For this early retirement phase, we intend to live off our taxable savings, without dipping into our retirement accounts, at a fraction of the cost of a normal retirement in the US.
  • For the regular retirement phase, in our mid-sixties, we will start withdrawals from our tax-deferred accounts. We should also qualify for Social security and Medicare at this age, assuming current rules. We should then really have the option of continuing to live in India, or returning to the US.

Under current conditions, it seems reasonable for us to expect to live on about $1000/month in India during the early retirement phase, not including initial moving and setup expenses. This would require about $300K in taxable accounts (assuming a withdrawal rate of 4%). All figures are in 2007 dollars.

Besides the usual uncertainties of inflation and cost-of-living increases (in both US and India) and investment returns, the other big risk in the above plan is the currency exchange rate. A weak US dollar (or a strong Indian rupee) will be a challenge for this plan, since most of my holdings are currently in US dollars.

I am sure that this plan will require some careful monitoring and tweaking as times goes by. But as they say, having any plan is better than having none at all.

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6 comments:

retirementwannabe said...

Nigel,
Fantatstic info! I have a question about your phase 2 taxes if you decide to stay in india during this phase. You will need to dip into your retirement savings; suppose you take only $24K/yr or less out then you will pay no US taxes, Great! However, (according to your 401k post) you will (may?) start paying taxes as a resident in India on your worldwide income. That means you will pay around 30% indian tax on money coming out of your IRA (yuck!). Do you have a plan to avoid this?

thanks

Nigel said...

Hi wannabe,
Social security income is not taxable in India. The status of withdrawals from 401k and IRA accounts is less clear.

30% is close to the highest tax bracket in India currently (and recently proposed changes will actually lower the highest tax bracket), so you have to have a pretty high income by Indian standards to pay this much in Indian taxes. This is not a bad situation to be in.

Also keep in mind that not many non-salaried people pay income taxes in India. I have yet to meet a retiree who pays income taxes in India.

retirementwannabe said...

Nigel,
thats a fair point that it will be less than 30% under the current code. For 2000/month or 12 lakhs a year the avg of the progressive tax is around 22-23%, so lets assume it is around 20% with deductions. I need to assume 2000/mo because I will be retiring in a city with kids. Also, in your case, 1000/month now will due to indian inflation probably become 2000/month in a decade or so. The proposed future code would lower the avg tax paid to 10% which is much better, but I don't know if it will pass since it gets rid of lot of deductions that some lobbies want.

Paying 20% on IRA withdrawal would mean that I would need to have a significantly larger nest and delay my retirement further. I am hoping to avoid this. Hence, it would be really helpful if we can get clarity on the ira tax issue for citizens (the issue may be different for non-citizens).

On your last point that most non-salaried people don't pay taxes. I agree with you. It seems hard for indian gov to track your foreign ira withdrawal, but it may be easy for them to ask for a copy of your us tax return which would have to show your withdrawal.

It would be shame to plan much and max into the ira, hoping to sepp it out tax free only to end up paying 20% to the indian gov. I hope there is a way out of this.

thanks

Anonymous said...

Hi - I was wondering if you can help me with my issues as I am not finding much help to figure things out. I moved to US in Nov 2004 and currently hold green card. I own an apartment in Mumbai (paid for) and will inherit a house in Gujarat. I had some money in India when I left in bank account and in MF investments in ICICI. I simply left it there. I get rent for my bombay apartment that gets deposited in my Indian savings account. I opened an NRI account few years ago. Now that i have green card (June 2009), i am planning to live here till i retire and possibly retire in India as i know i wont be able to live comfortably in US. perhaps when i am 60. No kids. My question is, what should i do with my indian account and investments? is it wrong to hold on to those accounts? i will possibly become a US citizen in the next 5 years. I am very confused about this. Would appreciate your advice.

Moorley Dharan said...

So this two phase retirement concept is exactly what we have in mind as well. After crunching numbers, we pretty much concluded the same thing in terms of savings needed, withdraw rates, etc. My question now is, did you move forward with your plan? If so, what has been your experience. Anything you can tell us about the location in India, and how you spend your retirement days will also be very useful.

Deenagiri said...

S No Item Amount(In Rs) Notes
1 Renovation  300000.00 Bath and Floor
2 Furniture and Setup 250000.00 First Time Cost
Grocery and Misc 50000.00 First time
3
4 Reserve fund  500000.00 Emergency needs
TOTAL= 1100000.00
5 Maid Servant  3000
6 Commute/Travel 3000
7 Groceries 10000
8 Clothes 2000
9 Cell Phone 2000 For 2 cell phones
10 Cooking Gas 2000
11 Electricity 3000
12 Cable/Dish 800
13 Paper Bill 200
14 Entertainment 5000
15 Internet 1500
16 Repair and Taxes 1500
17 Medical  4000 $ 615.00
18 Social 2000 40000.00
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