Author Topic: Am I screwed? High-Earner Abroad, No 401(k), No Roth/IRA  (Read 709 times)

blackletterlaw

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Am I screwed? High-Earner Abroad, No 401(k), No Roth/IRA
« on: January 08, 2019, 03:22:17 AM »
The Numbers (all in USD unless noted otherwise)

Age: 30 yrs.
Family Status: Unmarried with long distance partner
Salary: 180k fixed, will go up by 6k each year, annual bonus could go as high as 100k depending on performance but realistically  in the 10-30k range
Assets: $20k in cash and $1k in hand-picked stocks, $5k in electronics that I could maybe resell for half their value if I'm lucky (lesson learned: employ the 30 day rule, I wish I had heard about that earlier), I have $4500 as a security deposit in my apartment (does that count)?
Liabilities: None, except for a credit card that I pay off each month.

Monthly Expenses
Rent:                          $1250 (this is all inclusive, and I live with roommates. this will go up to $1450 next month as my roommates and I are moving to a new apartment because of landlord issues)
Cell phone:                    $40
Health Insurance          $290  (this is the cheapest option where I live, plus I will need surgery to fix an ailing problem this year so it should be worth it)
Groceries, Dining:        $1000 (this will go down as I (i) reduce the kind of quick lunch food I purchase, (ii) aim to prepare lunch at home. (iii) spend less meals out at dinner, and (iv) life hack some free meals and snacks. I.e. For this month I am trying a $150 budget challenge --> I think this is the hardest cost to bring down, goal is to average $400 for the next 6 months, I just don't have time to really bargain hunt here)
Commuting Costs:         $75  (this is pro rotated monthly of a yearly ticket)
Uber:                          $100 (going out + having to make meetings, flights, traveling when public transportation is down)
Long Distance Travel:   $500 (to see my partner; hard to bring this down; also my fault that I have missed multiple trains and have had to repurchase tickets, goal is $200-$300 range)
Unexpected Flights:     $1200 (this has been average per month, due to unforeseen travel for personal and family emergencies,I expect this to average out to $300/400 a month in the future)
Fitness Studo:             $183 (pro rated monthly; because of my working areas and location this is pretty normal for an all inclusive gym, basically I need a place where I can shower and have towel service, it sounds ridiculous...I know, I'm locked in to this until June because I paid up front)

Total Monthly Costs:  $4638

Monthly Take Home: $9650

Less Expenses :      $5012 (savings rate of 51%)

Oh and another thing, we have a 13th month in Europe where I live, so I receive an additional pro-rated month's salary - meaning  average monthly savings rate would actually be roughly 55%, but this is before I pay US taxes.

US Tax: I need to run the numbers on this, but I think it will be rough because and I may how something like $15-$20k in US taxes... Edit: Just played around with Taxslayer and realized I have no idea how much i would owe in US tax...I need to figure this out, probably read the tax form instructions myself.

Employer does not contribute to a 401(k). I have a local pension plan which Im not sure how it even works. Correction: I will make it my business in the next week to figure out how it works.

 I do non't have a roth or anything like that as I have been only previously employed on temp jobs and wasn't able to plan or save. Goal had always been until now to avoid going into debt.

I've closed down my US checking account and will open an International Account with Schwab.

So...yeah...what would you do in my shoes? I like working but would feel comfortable if I could get passive income from my money + assets to cover my basic expenses (housing, utilities, food, medical) by the time I'm 40-45. (Expecting that my salary would be $250 at 35, and that my monthly expenses (with a family) would not go any higher than $8k at age 45).
« Last Edit: January 08, 2019, 04:03:22 AM by blackletterlaw »

former player

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Re: Am I screwed? High-Earner Abroad, No 401(k), No Roth/IRA
« Reply #1 on: January 08, 2019, 05:19:00 AM »
Hello and welcome

The first big unknown that I see is your US taxes, which as you say probably mean that your savings rate is less than your current figures.  The proper place to start (for accuracy and security) is probably the IRS website - https://www.irs.gov/individuals/international-taxpayers/us-citizens-and-resident-aliens-abroad - and then go to other sites only where the IRS site fails you on info or functionality.

The second big unknown involves a big life decision: do you put your investments and savings into dollars or into local currency?  I you think this depends on where you see your long term future: if you have found the country where you want to spend the rest of your life you should be looking at local currency investments.  If you will be returning to the States within a few years then it should be dollars.  Perhaps some sort of split between the two if you are planning long term but not permanent life abroad.  Given the time scales involved there's probably not much to say about exchange rates other than that need to protect yourself against big adverse movements by centering your investments in the currency in which you hope to make use of them.   It's after you've made this decision on currency that you need to start thinking about tax regimes and how much to put into pensions and how much into investments you can access earlier.

On the expenses side the big issue that I see is transport, particularly the wasted train tickets and unexpected flights which are included in what is your biggest area of expense - almost $2k a month all together.  To which I would say: if you are planning for "unexpected flights" then they are not unexpected, are they?  If something is a true emergency then it is not planned, if it is planned it is not a true emergency but a function of the choices you have made and will make.  So I would say that you need to sit down and have a good hard think from first principles about the choices you are making regarding travel and what you can do to improve those choices.

blackletterlaw

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Re: Am I screwed? High-Earner Abroad, No 401(k), No Roth/IRA
« Reply #2 on: January 08, 2019, 06:45:57 AM »
Thank you for the response.

US Taxes:

You are 100% correct about this. I am going to try to file/calculate my domestic taxes first and then start working on a my US tax forms for the 2018, so that I get a sense of how much I might owe year to year.

Transport:

You are correct about me not sticking to any sensible principles here. In two cases I had months for which I knew I would have to travel generally in a certain month but the precise date was not fixed until 2 weeks before. Couldn't be helped and I won't be in the same situation again. In the other case, the emergency was indeed an emergency and came at a time when I was already on a mini vacation for an extended weekend. Lessons learned.

Where to invest?:

It's really up in the air right now...and with the taxation of worldwide income for US citizens I have to run the numbers on any non-US investments or savings...
In the short run I will split my savings in half, and work on putting half in an international brokerage account with Schwab (or perhaps Vanguard) (exactly what this means in terms of specific kinds of investments I'm not sure but hope to talk to someone at Schwab about this and do more learning on my own). I'll continue to hold my $1k in stocks (for fun).

On the non-US half I have been thinking about a four pronged approach because it is unclear whether I will be staying abroad long term: (1) cap out pension amounts that are covered by the US tax treaty; (2) put 5-10% in gold, (real gold) no cap gains on gold here, and I can put it in a security box at the bank, can cash it out quite quickly if I need it; (3) have a small fund for going in on short term investments with a friend that has done property development investments in the past and has some more in the pipeline; will put a portion aside monthly and cap it at $50k; (4) figure out what kind of other domestic currency investments I can make.

I'll also carry $3k and 10k in the US and my current home country respectively as  an emergency fund. I have three months security on my place and if it came down to it would just move in with my partner whose expenses are almost 1/5th of mine. Frugally and sensibly I could probably live there for at least 1.5 years unemployed if it came to it.
« Last Edit: January 08, 2019, 06:56:32 AM by blackletterlaw »

reeshau

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Re: Am I screwed? High-Earner Abroad, No 401(k), No Roth/IRA
« Reply #3 on: January 08, 2019, 09:22:17 AM »
A few initial points:

How long have you been in this situation?  For a stated savings rate of 51%, you don't have a lot of assets.  It's no shame to have recently seen the light, but without context it is also hard to judge just how complete and accurate your budget categories are.

Next, how long do you intend to stay in this situation?  You mention shutting down your US checking account, but say you still have $10k stashed in the US.  If you are thinking of this as lasting a handful of years, it may be useful to think about how you repatriate your money, too--and it is much harder to open a US account as a non-resident, than to maintain your old US account with a forwarding / local address.

Is your local country a high-tax jurisdiction?  given that you make much more than the foreign earned income exemption, you would probably be using the foreign tax credit.  So, if your local tax rate (net, not headline number) is higher than it is in the US, you will basically not pay anything.  You do still need to file, though--and file all financial documents, like FBAR, not just the tax return.  Looking at your take home vs. gross earnings, it sounds like this could be true.

Don't forget to look at the public pension as well as your company pension.  This will affect your US social security payment--it can add to it, if you don't get enough credit in the local country to earn a pension there.  Or, if you do get a foreign pension, it can actually take away from the US payment.

Regarding the employer's pension, is it a defined contribution plan? understand that very few outside of Canada and the UK are considered tax sheltered from the US standpoint.  Instead, this would be viewed as a taxable account.  Depending on the taxes you have paid on your salary, you may or may not be able to shelter this from US taxes.

In terms of what & where you want to invest:  what are your future goals?  If you want to return to the US, then by all means rack up dollars.  If you are going elsewhere, the answer is different.  I am setting up my stash for spending where I will be when I will spend it; to do otherwise risks ongoing currency risk.  Of course, high returns could overcome this; so could extreme currency values in the meantime (e.g. the British Pound right now)  But in general, set yourself up with the currency you are going to want to spend later.

Finally, looking at your non-US investment choices, it seems that you are aware of PFIC's, since you haven't listed any mutual funds?  But you do mention real estate deals--understand rent as income is a qualifier for PFIC status.

https://www.investopedia.com/terms/p/pfic.asp

blackletterlaw

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Re: Am I screwed? High-Earner Abroad, No 401(k), No Roth/IRA
« Reply #4 on: January 08, 2019, 09:49:51 AM »
Thanks for your comments. You seem to know what you are talking about.

I've been in this situation for 5 months now.

I don't have any assets (neither home nor auto).

I have two US bank accounts. I was going to convert my Schwab to an International Schwab account. My other account I will stay open, my address is listed to where my brother currently lives back in the USA. I receive all bank mail electronically.

I live in a low-tax jurisdiction. And yes I am above the FEIE....so not ideal situation.

Regarding the pension plan, it is the statutory plan offered by the government. My company only makes contributions under this plan...which I need to understand better. My general understanding (to be confirmed) is that I will be able to make withdrawals later tax free under the relevant US tax treaty.

Yes I'm aware of PFICs...ETFs should be fine however from my understanding. I just don't know if I'm fully on board with everything I'm reading about where I should be putting my money.

Not sure where I want to live long term to be honest. It is going to depend on my partner...but I imagine future currency would have to be either USD, EUR or CHF.
« Last Edit: January 08, 2019, 09:52:35 AM by blackletterlaw »

BrightFIRE

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Re: Am I screwed? High-Earner Abroad, No 401(k), No Roth/IRA
« Reply #5 on: January 08, 2019, 12:59:28 PM »
I'm only going to address 2 parts:

First: check out Go Curry Cracker - he is an American who has FIREd and is living abroad with his wife. He writes a lot about his taxes and the FEIE.

Second: Groceries, Dining: $1000 (this will go down as I (i) reduce the kind of quick lunch food I purchase, (ii) aim to prepare lunch at home. (iii) spend less meals out at dinner, and (iv) life hack some free meals and snacks. I.e. For this month I am trying a $150 budget challenge --> I think this is the hardest cost to bring down, goal is to average $400 for the next 6 months, I just don't have time to really bargain hunt here) <<This is a hot mess.  You spend a ridiculous amount of money on food, and you think you're suddenly going to drop it by 85%?!! I predict you'll try to be extreme, feel deprived, and give up. Instead, why don't you start out with something simple, like packing lunch each day. After you've done that for a month, see what else you can do to bring this down. And I call 100% bullshit on "I don't have time" - you do have time, you are choosing to use that time on other things because reducing spending on food hasn't been a priority.

Also, overall, I see a lot of excuse-making and hedging. Figure out the actual amounts you are spending. Figure out what you are willing to change. Tackle 1 thing at a time. Once you've gone through all of the budget items once, go through again and try to reduce them some more. Don't try to cut everything to the bone at once and then fail because you feel deprived. Slow and steady wins the race. You have an awesome salary - use it to your advantage!