Tax and health insurance considerations for ex-pat in retiring in German

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First some background - My wife (citizen of US and Germany but with residence, work history and assets in the US) and I (US citizen), currently still 5-8 years away from retirement, have some thoughts of possibly retiring in Germany. Obviously the decision of where to locate ourselves is a lot more than a financial decision, and perhaps my limited German language ability (rectifiable) and inability to blend in from a skin color stand point (not rectifiable) will play a bigger role in the ultimate decision. However, the tax impact is not an insignificant factor we project to have financial assets between 5 to 10M USD in a mixture of pre- (401K, 303-B) and post- tax portfolio of stocks, bonds, US mutual funds and private partnership assets. The main purpose of this thread to confirm my macro-level understanding at this stage. We will engage professional expertise such as that on this board before making a final decision.

 

Taxes: From my understanding of the tax situation thus far 

- We might be best advised to convert our US pre-tax assets to post-tax before establishing a German tax residency. That'd cause us to pay the top US tax rate at the time of such conversion, but that is below 42/45% German tax rate pre-tax assets would be subject after the German tax residency. Such a conversion would make the portfolio post-tax and we'd incur the German tax rate on only the returns generated by it. 

- I understand that the tax rate for income generated from assets is 30.5% (= 25% + 5.5%)

 

Health Insurance: We will obviously forfeit the US medicare coverage in such a move. What I am less clear is the range of annual health insurance costs we should be budgeting for. Also, what might be a good assumption in the increases in the insurance costs with age. Again, interested in a macro-level understanding. Neither of us has worked in Germany. [I have as an ex-pat but only for a year - though taxes were filed on my behalf for two years.]

 

Impact of Real Estate investment prior to establishing German tax residency: As I indicated, a move to retire to Germany is yet unconfirmed and likely 5-10 years away. Yet, once in a while - the thought of buy an apartment - likely in Berlin/Hamburg (the two cities that interest us) prior to the move does cross our mind. If we don't retire here, we can sell it or keep it as a second residence. We have resisted it so far as we wonder if that might have a potential to complicate our tax picture outlined above.

 

We would appreciate any information or advice on the above points. 

 

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8 hours ago, Kavm said:

I understand that the tax rate for income generated from assets is 30.5% (= 25% + 5.5%)

 

No, it´s 25% + 5% of 25% = 26,25%. However, there is political discussion to raise that level or do away with the flat rate altogether. There is no capital gains for investements done before 2009. However, be aware that there is a fictional tax for certain "intransparent" funds, which might well affect investments outside the EU. Worth checking that with a tax advisor before you move.

 

Cost of health insurance very much depends on your age and preexisting conditions. Having had no previous German public health insurance and being above age 55 you´ll have to go private unless you start employment. If you´re serious about the move it might make sense to take out an "Anwartschaftsversicherung" now which will cost only a fraction of the regular contribution just for the right to join once you´re older without being subject to a health check. Private insurance companies can refuse to accept your business in the regular tariffs if you have preexisting conditions and to relegate you to a very basic but expensive (currently € 703.-) "Basistarif" which is something I´d like to avoid. You´ll also need nursing care insurance. It´s best to talk to an insurance broker. There are several active in this forum. Also check the wiki.

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@Kavm

 

if you plan to stay in Germany thru retirement, it might be best if you'd join the public health insurance, despite your excellent financial status. That, as jeba explained above, though, is not possible if you move directly to Germany (at least not in the current legal situation, not sure how much this going to change in the next 5-8 years before you actually make your move to Germany)

But since you have some freedom of planning, you might want to consider to move at first for one year maybe to Ireland or Austria or any other EU-memberstate you fancy to enjoy for a while and get yourself there into the local/national health insurance system. Because if you come to Germany with 12+ months under your belt from any other EU-memberstate's public health insurance/national health insurance, you have the right to join the German public health insurance system in your own right ( you can still beef if it up with private supplementary coverage to any level of benefits you wish to have). 

 

Of course, since you are financially pretty well set, you can forgo all this and sign up with German private health insurance. That will give you top-notch coverage... provided, that you do not have by then any chronic medical conditions or health issues that would make the German insurances believe that you'd be too much of health (read: cost) risk in the future.

All in all, it will make sense to enlist the services of an independent insurance advisor to help you with that.

 

Plus: when you are here, you might want to have a financial advisor who caters especially to US nationals in Germany and know how to deal with your 401k, 403b, IRA and ROTH-IRAs and more. And any investments that you have set up directly into mutual funds, ETFs and what not. There are some specialists on the market for that kind of advice, too, which can already assist you in consolidating your existing pension accounts and more in preparation for the move towards Germany. 

 

Cheerio

 

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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Thank you both for your very helpful advice. Gives us a very good starting point, and clears some important misunderstandings. We’d definitely need specialist financial advice to make the right steps - one to two years prior to the actual move. We do not have much of our assets in Roth IRAs as they are subject to income limits that we do not meet. Regardless, I will reach out Starshollow as we get a bit closer to the time and decision. 

 

Barring health setbacks in the coming years, we are in decent health for our age group. But, who knows what happens in the interim years and what can be counted as pre-existing condition. The idea of spending a year in Ireland / Austria (both appealing destinations) could be something that we can pursue. Beyond that, I did not understand the idea of getting “Anwartsschaftsversicherung” now. We are currently based in the US and have good health insurance coverage now. Will not be moving to Germany before retirement - both because my business and my wife’s employment are there and because too much of our income will fall in 45% tax bracket in Germany. So, can/should we still look into getting Antwardsschaftsversicherung now? If possible, please explain a bit more about that. I will also google it to understand better.

 

Each of us have a long-term care policy that pays something like USD 350/day after 6 months delay upto a max of close to $1M over lifetime - for home or nursing home type care. The policy pays regardless of the country we are located in. Would we still need the nursing home policy in addition?

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34 minutes ago, Kavm said:

 I did not understand the idea of getting “Anwartsschaftsversicherung”

You can think of Anwartschaftsversicherung as buying an option to join the insurance at a later time and the insurance company waiving their right to deny cover in their regular tariffs. There is a "big" and a "small" Anwartschaftsversicherung, the former one locking in the tariff according to your age at the time you buy the Anwartschaft (in Germany once you joined private insurance will not increase premiums merely because you get older but of course, your entry premium depends on age as younger people usually have lower risk).

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hello Kavm! Your wife is a German citizen. Even if she has never worked in Germany---as long as she hasn´t been self-employed the past five years and has had some kind of (cough) public health insurance in the USA, she could apply for German public health insurance as a " returning German " under a well-known (to the insurers ) Paragraph 13 rule.

I am a professional independent insurance broker and authorised advertiser. Contact me.
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Hello john g! My wife is indeed a German citizen. As you know, public health insurance is an oxymoron in the US context but she is a professor and has uninterrupted insurance through her employer. It is great to know that she has a right to apply for the public health insurance as ‘returning German.’  I presume I would have to do one or more of: (a) spend one year in another EU country as suggested earlier, (b) look into antwartschaftsverschierung, or (c) take my medicine with the health insurance options available at the time. Correct?

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Kavm, when you lived shortly as an expat in Germany, were you with German public insurance?

I am a professional independent insurance broker and authorised advertiser. Contact me.
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I do not think so but am not sure. I was covered by the company-provided health insurance. It was a US company which had a German branch/subsidiary (do not know how that was structured in relationship to the mother company). Not even sure how my contract was internally structured within the company for this period. I, of course, had the proper employment permission and taxes were filed on my behalf for two years by Ernst and Young. I recall that they were not insubstantial as the accounting company had appealed my assessment to some tax court and they were held up, etc. Do not know the details as I was focused on my work. I have the tax filings / dossier from E&Y from early 2000, but that’s all I have in way of records. 

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