Draft expat retirement plan. Will it work?

[SunshineAZ]

Life situation:  Couple 52/56, he has 4 grown children. I have none. I am semi-mustachian and he is somewhat spendypants, but he really really wants to retire. We currently live in a fairly LCOL location, but we want to retire next year to our house on the island of Roatan, in Honduras.  That house is fully paid for.  We are aiming for FIRE in early/mid 2019.  Our current house is just at the break even point after being underwater for almost the entire time we have owned it.  (Bought in 2007, unfortunately.)  So most likely we will not be making any money off selling the house.

Assets:                    HIM            HER

Current 401k          $175k        $0 Old 401k                  $520k          $700k Taxable                                   $60k Cash                      $?           $25k TOTAL      $1,480,000 Estimated Monthly Roatan budget: Food      $500    (groceries and eating out) Electricity      $350    (estimating high) Gas (cooking)      $75     Water      $25     Cell phones      $100     Cable/Internet      $150    (per friends who live there already) Car (gas/maint)      $100    (won't be doing a lot of driving) Med Ins.      $300    (high deductible international plan) Car/house Ins.      $250     Pets      $100     House updates      $150     Diving      $200    (tanks and boat dives) Travel      $300    (Put aside for trips back to US or other travel) TOTAL      $2,600    (Annual $31,200)

*Sorry about the bad formatting, it did not import well.

Current plan:

When DH leaves his current job, live off of his current employers 401k until he reaches 59 1/2 and then roll whatever is left into his Vanguard account and live off that until I am 59 1/2 and then we will switch to using my Vanguard account or using both depending on account values at that time. 

Since the house in Honduras is paid for, we are planning to live on a budget of $36k per year, which gives us quite a bit of wiggle room.  However, there will be some initial costs for moving, getting residency and fixing up the house as it has been rented for many years and needs some repairs and updating.  The majority of that work will be done by us, and the more difficult things will be done by local workers.  We will do the most urgent things first and then try to do the other updates as we can budget for them.

We plan to stay in Honduras as long as we are physically capable and enjoying it and come back to the states hopefully after we both fully qualify for SS and Medicare.  We plan to let most of our stache at Vanguard grow until we need/want to come back and by then it should support a higher US cost of living, especially if we get SS, as we are both estimated to receive >$2,000. 

ISSUES THAT I AM STILL WORKING ON:

1. A US bank account that doesn't charge a monthly fee and doesn't charge ridiculous fees for wire transfers.  I currently have BofA and a credit union and both charge a fee if you don't have a direct deposit. We have looked at Davivienda bank because it has Honduran and US locations, but would like other options. Maybe and internet bank would be better?

2. How often should we do withdrawals from the 401k, quarterly, semi-annually?  The 401k we will be drawing from is terrible, all the funds have high fees >1.5% and I am sure we will pay fees for the withdrawals. So I am thinking the fewer the better. 

3. Will need to start a Roth conversion ladder to minimize later RMDs. Not sure how to do this? I know it is probably simple, but I haven't seen a good explanation of it.

4. We need to establish residency in a no income tax state. Anyone have any experience doing that? Since two of DHs kids may be living in Texas, that might make the most sense. Although one of them is military, so no guarantee they will stay there. Florida is another option, since it is the easiest/cheapest place to fly to Roatan. I need to figure out if there is an advantage to one over the other. 

5.  Need to establish a US mailing address and mail forwarding company.  Anyone done this before?  I have researched a few that were posted on another thread for RVers, but I don't know how well they would work for international.

I know you guys think of everything, and I am sure I am overlooking things.  Please tell me your experiences and/or advice (facepunches). 

Thanks in advance.

[shelbyautumn]

I have advice for #4 - South Dakota! My mom lives in Costa Rica became a South Dakota resident. You only need to stay one night in a motel or campground and set up an address with a mail forwarding service to get your driver's license.

It does require an overnight trip to the state, but a trip to SD is cheaper than paying income tax!

Here is a mail forwarding agency - they give a bit more detail: https://dakotapost.net/rates-services/south-dakota-residency

[SunshineAZ]

I have advice for #4 - South Dakota! My mom lives in Costa Rica became a South Dakota resident. You only need to stay one night in a motel or campground and set up an address with a mail forwarding service to get your driver's license.

It does require an overnight trip to the state, but a trip to SD is cheaper than paying income tax!

Here is a mail forwarding agency - they give a bit more detail: https://dakotapost.net/rates-services/south-dakota-residency

Thank you!  I will look into that.  One of DHs daughters currently lives in SD, but will be moving soon.  (Military husband.)

[terran]

1. Schwab has a good checking account for people who need to make international ATM withdrawals because the don't charge currency exchange fees and they reimburse ATM fees. With all financial institutions it can be tricky being an expect because the Patriot Act (I think?) imposes extra compliance issues on the bank, so they don't always like to deal with expats. Similarly, foreign banks don't like to deal with US citizens. Some people seem to take the "don't ask don't tell" approach and hope the bank doesn't catch on. Schwab might be one of the few that "officially" has special accounts for expats, but I haven't looked too much into it as we're still a ways off.

2. Roll that thing over to an IRA! No reason to be paying 1.5% expense ratios once you separate from service and can roll over. Other than that, the mathematically optimal thing is to leave money in the IRA and invested until as soon as you need it. This is just an extension of lump sum investing being better (get it invested as soon as you can) except in reverse (keep it invested as long as you can). Of course you need to balance this with cash flow and hassle issues. I think any of your proposed schedules should be fine, so just do it whatever way will be easiest for you to work. Keep in mind both the hassle of making the transfer (good reason to do it less often) and the psychological issues of having a big chunk of cash sitting in your checking account (good reason to do smaller more frequent transfers to make it more like a paycheck).

3. Roll over your 401(k) to an IRA at Vanguard/Fidelity/Schwab. Open a Roth IRA at the same place. Call them up and tell them how much you'd like to convert from the IRA to the Roth IRA. I wouldn't be surprised if it's possible to do online without calling them. If possible don't have them withhold taxes (or if they do replenish the amount from other funds) and pay the taxes out of taxable (you'll need to pay quarterly estimated taxes). Taxes you pay out of the IRA before you're 59.5 will count as a withdrawal and you'll owe an extra 10% penalty. Here's a longer explanation: https://www.madfientist.com/how-to-access-retirement-funds-early/

4. Those both sound like good options. Like shelbyautumn, I've also heard South Dakota is especially easy too. Spend a night, get a license and you're a resident.

5. People definitely do this when they're international. Ideally you'll want to get as much as you can switched to electronic delivery so you don't often need them to deliver and/or open and scan anything. In some ways I think a relative is best because the big mail forwarding company addresses sometimes end up on lists that the financial institutions use to figure out that your don't have an actual US address.

Edit: You didn't ask about it, but with a spendypants husband, it seems like it would be worth doing whatever you can to make sure he's going to be able to keep that in check. Maybe try living with the type of lifestyle you've budgeted for to the extent possible in your current location. Obviously it will cost a different amount, but if he could have a trial run of the amount of spending he should expect to be doing it seems like that would be a good thing.

[SunshineAZ]

2. Roll that thing over to an IRA! No reason to be paying 1.5% expense ratios once you separate from service and can roll over. Other than that, the mathematically optimal thing is to leave money in the IRA and invested until as soon as you need it. This is just an extension of lump sum investing being better (get it invested as soon as you can) except in reverse (keep it invested as long as you can). Of course you need to balance this with cash flow and hassle issues. I think any of your proposed schedules should be fine, so just do it whatever way will be easiest for you to work. Keep in mind both the hassle of making the transfer (good reason to do it less often) and the psychological issues of having a big chunk of cash sitting in your checking account (good reason to do smaller more frequent transfers to make it more like a paycheck).

So I was under the impression that because he is over 55 he would be able to withdraw penalty free from the current employer's 401k, but if we rolled it out, then he would lose that benefit.  That is why we were planning to keep it and use it first. 

Are we wrong about this? 

[Poeirenta]

We are also looking at an expat retirement, but maybe more of a nomadic one. Roatan is on high on our list for the snorkeling!

Appreciate seeing the budget numbers. Do you have any idea what longer term rentals go for in Roatan?

Our biggest hurdle is health insurance/care. I have been researching international major medical and multi-trip medical plans, which is a little more complicated b/c we each have pre-existing conditions, one of which is expensive (at least in the US; insulin, pump, etc.). May I ask which plan(s) you are considering and why? Thx!

[Dave1442397]

2. Roll that thing over to an IRA! No reason to be paying 1.5% expense ratios once you separate from service and can roll over. Other than that, the mathematically optimal thing is to leave money in the IRA and invested until as soon as you need it. This is just an extension of lump sum investing being better (get it invested as soon as you can) except in reverse (keep it invested as long as you can). Of course you need to balance this with cash flow and hassle issues. I think any of your proposed schedules should be fine, so just do it whatever way will be easiest for you to work. Keep in mind both the hassle of making the transfer (good reason to do it less often) and the psychological issues of having a big chunk of cash sitting in your checking account (good reason to do smaller more frequent transfers to make it more like a paycheck).

So I was under the impression that because he is over 55 he would be able to withdraw penalty free from the current employer's 401k, but if we rolled it out, then he would lose that benefit.  That is why we were planning to keep it and use it first. 

Are we wrong about this?

You might find the attached pdf useful. I found it via another post here today.

[terran]

2. Roll that thing over to an IRA! No reason to be paying 1.5% expense ratios once you separate from service and can roll over. Other than that, the mathematically optimal thing is to leave money in the IRA and invested until as soon as you need it. This is just an extension of lump sum investing being better (get it invested as soon as you can) except in reverse (keep it invested as long as you can). Of course you need to balance this with cash flow and hassle issues. I think any of your proposed schedules should be fine, so just do it whatever way will be easiest for you to work. Keep in mind both the hassle of making the transfer (good reason to do it less often) and the psychological issues of having a big chunk of cash sitting in your checking account (good reason to do smaller more frequent transfers to make it more like a paycheck).

So I was under the impression that because he is over 55 he would be able to withdraw penalty free from the current employer's 401k, but if we rolled it out, then he would lose that benefit.  That is why we were planning to keep it and use it first. 

Are we wrong about this?

I believe the plan can choose to allow that or not, so check, but yeah, that's pretty common and probably the only reason I would keep it where it is. Good point.

[SunshineAZ]

We are also looking at an expat retirement, but maybe more of a nomadic one. Roatan is on high on our list for the snorkeling!

Appreciate seeing the budget numbers. Do you have any idea what longer term rentals go for in Roatan?

Our biggest hurdle is health insurance/care. I have been researching international major medical and multi-trip medical plans, which is a little more complicated b/c we each have pre-existing conditions, one of which is expensive (at least in the US; insulin, pump, etc.). May I ask which plan(s) you are considering and why? Thx!

My only experience with rentals is with renting out our house, which we rent for $700 a month and it is a 3 bedroom 2 bath, plus an office that can be used as a bedroom.   Which is pretty cheap for the size, but we haven't made any money on it, because the fees for the property manager are high and maintenance seems to suck up all the rent.  (The humidity takes a toll on everything.)  I am on several Roatan groups and have seen a huge difference in prices depending on the location and the size.  I think if you are just looking for a smaller place, you will find a wide range of options and prices.  Sorry I can't be more helpful. 

Regarding medical insurance, I think the one I looked at was Cigna and I also have seen people mention other ones that I was going to check out when we get closer.  My estimate was based on what friends told us they were paying.  In general health care on Roatan is very cheap, so for most things we planned to pay out of pocket and only have a catastrophic plan for a real emergency.  We would probably also keep DAN insurance for any diving emergencies.  I do not know how pre-existing conditions would change the insurance options.

There is a facebook group called ASK ANYTHING-Roatan, that might be helpful for you, a lot of American expats are on there.

 

[electriceagle]

You mentioned a house in Roatan. Is it concrete block or wood? If the latter, keep in mind the inevitable, ongoing war against the termites.

The 4% SWR "system" is based on withdrawing 4% of your initial stash, indexed for US inflation. However, emerging market inflation is typically higher than US inflation. I don't know about Honduras, but inflation in Panama often runs at 5% (2x US inflation). Thus, the amount of local stuff that you can buy will decrease over time. You can hedge against this by having a house (already done, congrats!) and/or renting rooms to tourists.

You said that you won't make anything by selling your house. Does it make sense to get a property manager and be a remote landlord?

On the spendypants husband: the only ways for you to spend money on Roatan are diving and eating out. Its not as though you can go to the mall. As always, people who adopt the local way of living are happier and spend less than those who try to import their way of doing things.