Author Topic: Retiring overseas - currency risk/investing concerns?  (Read 2029 times)

Beric01

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Retiring overseas - currency risk/investing concerns?
« on: May 01, 2015, 01:04:55 PM »
So I currently live and work in the US, and I'm currently more likely than not to FIRE in a low-cost of living country in my early 30's. One of my biggest concerns is currency risk, particularly while utilizing US retirement accounts (401(k)'s, IRA's, etc.). If I were to hold all of my Vanguard assets in the US (retaining a US address with family/friends for investing purposes), how would that address these concerns?

  • Day-to-day and year-to year pricing concerns. If all of my invested assets are currently US dollars, would I want to move some of those assets into the local currency, or keep all of that money in US dollars? Will local currency fluctuations affect me in a major way?
  • Increased cost-of-living as a country develops. A country may be very cheap to live in now, but as it develops, prices of goods may go up relative to the US dollar.  Is this a major concern over a typical 50-year retirement as a FIRE'd person? If I have saved enough to live a comfortable life overseas, but only a very minimalistic life in the US, will this cause me to constantly be moving to the next cheap country as the one I am in becomes more expensive?
  • Tax/financial reporting concerns. Based on my current understanding, the IRS seems to be doing everything in its power to make it difficult for an expat to live overseas. And if the worst comes to the worst, they seem to be making it harder/more costly to rescind your citizenship too. My current investment strategy has me utilizing a 401(k)+Roth IRA ladder to minimize taxes. Is this strategy subject to increased US political risk as an expat?
« Last Edit: May 01, 2015, 01:06:36 PM by Beric01 »

nereo

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Re: Retiring overseas - currency risk/investing concerns?
« Reply #1 on: May 01, 2015, 01:34:41 PM »

  • Day-to-day and year-to year pricing concerns. If all of my invested assets are currently US dollars, would I want to move some of those assets into the local currency, or keep all of that money in US dollars? Will local currency fluctuations affect me in a major way?
  • Increased cost-of-living as a country develops. A country may be very cheap to live in now, but as it develops, prices of goods may go up relative to the US dollar.  Is this a major concern over a typical 50-year retirement as a FIRE'd person? If I have saved enough to live a comfortable life overseas, but only a very minimalistic life in the US, will this cause me to constantly be moving to the next cheap country as the one I am in becomes more expensive?
  • Tax/financial reporting concerns. Based on my current understanding, the IRS seems to be doing everything in its power to make it difficult for an expat to live overseas. And if the worst comes to the worst, they seem to be making it harder/more costly to rescind your citizenship too. My current investment strategy has me utilizing a 401(k)+Roth IRA ladder to minimize taxes. Is this strategy subject to increased US political risk as an expat?
Thoughts from my personal experiences being a US citizen living in Canada...
1) IMO it's easiest to keep your investments where they are, and then periodically sell and convert some into your local currency.  You do NOT need a US residence to maintain an account with Vanguard, Fidelity etc, but if you only have a foreign address they will not let you add to the account per the IRS's rules.  You can park your money there nad then sell shares as necessary.
2) Changes in the COL for various countries are perhaps your biggest worry.  Not sure how to rectify this except to say that you may want to keep your options open and be willing to move to a new place if your current one becomes either unstable or too pricy.  I've watched a number of formerly 'cheap' places to live become much more expensive over the last 20 years.  Heck, my grandfather talked about how Paris was the vacation spot for post-war GIs in the 1950s because everything cost half as much as it did in the US.  Times change
3) The IRS rules really aren't that bad or ornerous.  True, you will have to file taxes once per year, but you get a $96k deduction for any foreign earned income, and you still get your standard deduction of $6300.  Basically oyu just file a 1040 (which shows any capitol gains) and then form 2555.  It's pretty simple, as long as you don't have multiple incomes from multiple employers like I did.  The upswing is that, should you live in another country for a decade, earn income (including from real-estate) and then want to move BACK to the US, that money is more easily transferred back into USD.  Or at least so I'm told... haven't tried that part yet.