Drawdown across borders: sequencing withdrawals when you retire in a different country

Accumulation, the saving-up years, has a fairly standard answer worldwide. Decumulation, the spending-it-down years, is local. Every country has its own rules. And the order you draw from your pots often matters more than what's inside them.

Which country gets to tax your pension?

Start with the tax treatyDouble tax treatyAn agreement between two countries that decides who taxes what, so the same income isn't fully taxed twice., not the portfolio. A tax treaty is an agreement between two countries about which one taxes what.

Pension income is usually taxed in the country where you live. That's Article 18 of a typical OECD-model treaty (the standard template most countries' treaties follow). But government-service pensions are often taxed by the country that pays them, and several treaties, including some the UK has renegotiated recently, treat lump sums differently from regular payments.

That matters for the UK 25% pension commencement lump sum, the tax-free cash you can take from a UK pension. It's tax-free in the UK. It's not automatically tax-free where you now live. Portugal, Spain and France have each taxed it in circumstances that surprised the person receiving it.

What to do: before your first withdrawal, get it in writing which country taxes each income stream. A withdrawal made in the wrong tax year, or in the year you change residence, can't be reversed.

Which pot should you spend first?

Most retirees hold three kinds of money:

• Taxable: general investment accounts.
• Tax-deferred: pensions, where tax is paid when you take the money out.
• Tax-free or tax-favoured: ISAs, certain bonds, your main home.

The conventional advice is taxable first, then deferred, then tax-free. In one country that's a sensible default. Across two, it's frequently wrong.

Four things can change the order.

Here they are in plain terms:

• A low-tax window. Say you retire somewhere with no personal income tax, or with a favourable regime for new arrivals that runs for a fixed term. Then it makes sense to take pension withdrawals faster inside that window, rather than after it ends.
• Your estate. Where a pension sits outside your estate for inheritance-tax purposes and a general account sits inside it, drawing the taxable account first serves both goals. Where it's the other way round, so is the order.
• Currency. Drawing sterling to spend euros in a weak-sterling year is a permanent loss. Hold two to three years of spending in the destination currency and you're never forced to sell at a bad moment.
• Tax bands. Fill a lower tax band each year with pension income, even when you don't need the cash. That beats one big withdrawal later.

Where are the grey areas?

The rules on lump sums and on moving mid-retirement aren't uniform, and treaties differ. That's why the advice is to check each stream in writing rather than assume.

Why do the first five years matter so much?

Because a bad start can't be fully repaired. This is called sequence-of-returns risk: the order your investment returns arrive in, not just their average. It's why two retirees with identical average returns can end up in opposite places.

A poor first five years combined with fixed withdrawals permanently damages a portfolio. You're selling more shares at low prices just to pay the bills.

The defences are unglamorous but they work:

• A cash and short-bond bucket covering two to three years of spending.
• A flexible spending rule that trims non-essential withdrawals after a bad year.
• A rebalancing policy that refills the bucket from whatever has performed well.

Think of the bucket as a spare tyre. Nobody brags about carrying one, but you'll be glad of it on a bad road.

What happens if you move again later?

Every move re-opens the whole analysis: treaty, how each country treats your wrappers (the account types and structures holding your money), succession law (who inherits what), currency and reporting.

People move in retirement for grandchildren, healthcare or cost of living. Some wrappers travel badly. A structure that's efficient in Dubai can become a reporting burden in Italy.

So we build a "portability note" into every retirement plan. It sets out what would need to change under the two or three most likely destinations. That way a move is a decision, not an emergency.

What do we actually produce?

A written decumulation plan. It sets out:

• The order of withdrawals, by pot and by year
• The expected tax in each country
• The currency plan
• The cash buffer policy
• The trigger events that would mean a rewrite

It's a written fee with no hourly billing, reviewed annually, with no commission on any product inside it.