Author Topic: Where should we stick our retirement funds for a retirement lived abroad?  (Read 3046 times)

EngGirl

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  • Age: 30
  • Location: Toronto, Ontario
I’m a 22 year old Canadian girl, born and raised. A couple of years ago I met a wonderful Scottish guy while he was on a study exchange at my university in Canada. Three years later we graduated, he moved to Canada, and we got married. He is now a permanent resident. We are currently barreling through our student loans, but we want to start saving for our retirement (UK student loans are at 1.5%, and I know we can get a better return than that so we want to balance loan repayment with retirement savings). The only problem is, we don’t know where we will end up long term (Canada or Scotland), and how this will affect the way we should be saving. Should we be using RRSP’s, TFSA’s, or another method entirely?  (And what do we do after we max out the piddley 18% RRSP limit and the weak $11000/year TFSA limit?) We are worried about double taxation. Anyone know how double taxation works? Where should we be sticking our money?

Snowboard junkie

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Tough questions.  I'm going to jump in here because nobody else has.  I have dual uk and Canadian citizenship and I have spent time in both locations, but I am single. So I haven't had exactly the same issues as you but I am somewhat familiar with the issues.  No clear solutions though. 

Are you planning on going back and forth or spend time mainly in one country?  Not moving repeatedly is the best way to avoid taxation issues but that makes life Less interesting.

  The issues of differing rates of inflation and return, and currency fluctuation are obviously an issue.  I would suggest normally that you invest equities in a third currency that is relatively stable, and transfer funds to the country you are currently in.  In the past I have invested in japanese stocks and bonds, but right now the yen is not a good safe haven (IMHO).  Everyone has an opinion about the next best thing (gold, renminbi, hkd, etc.) but I have no crystal ball so if you come up with something, let me know. 

Do you file jointly or separately?  You may be able to easily avoid double taxation by filing separately.  I.e. One of you in canada, and one in the UK. 

Each of you should purchase a primary residence in each country.  Live in one, rent the other out when you're not there.  Make sure it is a low maintenance property and you set up contingencies in place for emergencies.  canada (particularly Toronto) isn't great for this right now, butit should be a long term goal.

I would also recommend Investing in some dividend bearing stocks in both markets.  I stuck to large multinationals.  Most of these get favorable tax treatment for their dividends if they have a Canadian or uk subsidiary.  This may make them better from a tax point of view than etf's if you don't know where you'll be and dont want to rebalance your portfolio when you move.  Limit your trades to avoid triggering capital gains. Use the dividend income to pay for trips in each location if travel is frequent.  Keep a backup fund in each major currency to avoid losing money each currency transaction.

Look into major purchase costs in each currency, especially flights and electronics.  There are often opportunities for selective purchases from the cheaper location.

Limit travel costs (easier said than done) and take advantage of frequent Flyer plans. 

Max out the rrsp/tfsa options before you do any of the above. 

Hope this has been helpful.

EngGirl

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  • Age: 30
  • Location: Toronto, Ontario
Thanks snowboard junkie! You gave us many ideas on types of investment methodologies/investments we should be researching next. I really like the idea of having properties in both countries (although I wouldn't buy in Toronto - as MMM said, half a million will buy you a vinyl shack in the suburbs). We've found it exceedingly difficult to find answers on this topic, especially from an early retirement PLUS country hopping perspective (we do plan on making at least 2 moves – one for kid(s) and one for retirement living).

icefr

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With a 1.5% student loan, it might not make sense financially to pay it off, but it could logistically depending on how hard it is to get money into the UK. I am a Canadian living in the US and I have friends who paid off student loans in Canada ASAP so that they could stop sending money back to Canada all the time. So look into exchange rate conversion fees and evaluate whether it makes sense to just pay that loan off.

How much money do you keep in the UK? I try to keep a bit in Canada for now, but I'll evaluate as the amount I have left there may be gone by the end of this year based on how much of it I spent last year...

Snowboard junkie

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Re: currency conversion - the only way to win that game is not to play. 

Option 1: talk to friends/ family/ other travelers re: exchanging currency in a mutually advantageous way.  I.e. when they visit Canada you give them Canadian dollars, and take back British pounds when you visit or vice versa. (use the google exchange rate so nobody loses out on a conversion fee).  Plan ahead for payments on loans, etc.

Option 2: use a currency broker (i use Vancouver bullion and currency exchange, but multiple options exist that will give you better deals than the banks)

Option 3:  use the futures market to advantage - eg xetrade.com. (riskier though)

Option 4: use short term rentals to maximum advantage.  I.e. when you're leaving Britain to come to canada for a visit, rent out your place to canadians paying Canadian dollars (and then spend that on your vacation costs). This one might be tougher for the currencies you are considering, but worthwhile if you plan ahead. 

I have a whistler property that I rent out on vrbo occasionally (airbnb works ok too).  I usually rent it out to Americans who pay in usd.  I keep the usd on hand until I go to the states. Have also accepted payment in euro and Pounds, but much less frequently.  Also, it's not my primary residence and it's paid off, plus I don't rely on income from it for day to day needs (i'm not early retired yet) so any income from it is banked.  When I am taking time off and going to whistler myself, I try to rent out my primary residence, but the location isn't as good and that is hit and miss. 

A loan in another country at 1.5% can be effectively a 4-6% loan if currency margins, fees, and fluctuations are considered.  May be best to pay it off since its tough to reliably get that after taxes.