Expat Investing 500K to retire early
Discussion
I'm looking to retire in around 7 years at age 56. I have a final salary pension that is already big enough to support me from 65 but would like to invest my 500K cash savings now to retire early. Info...
I am expat in the USA subject to US taxes but paid in Pounds UK.
I do not own a home
In addition to the 500K I have 120K in equities and 110K in car collection.
I currently save around 40K per year.
I would like 35K per year when I stop working, preferably not drawing down too much on my pot
I have no kids. My wife does not work but has a rental income of 1000ukp per month.
I was thinking about buying a UK rental property for 250K, invest 150K in Vanguards 80/20 passive Life policy and 100K in a managed S&S policy
My risk tolerance is Med/High i.e. I don't want to loose this but am willing to take a wee punt to help it happen. Worst case I see is I have to carry on working for the man a bit longer.
Thoughts please
I am expat in the USA subject to US taxes but paid in Pounds UK.
I do not own a home
In addition to the 500K I have 120K in equities and 110K in car collection.
I currently save around 40K per year.
I would like 35K per year when I stop working, preferably not drawing down too much on my pot
I have no kids. My wife does not work but has a rental income of 1000ukp per month.
I was thinking about buying a UK rental property for 250K, invest 150K in Vanguards 80/20 passive Life policy and 100K in a managed S&S policy
My risk tolerance is Med/High i.e. I don't want to loose this but am willing to take a wee punt to help it happen. Worst case I see is I have to carry on working for the man a bit longer.
Thoughts please
Edited by PapaBear on Thursday 16th March 22:17
Edited by PapaBear on Thursday 16th March 22:20
Probably the wrong place to ask given your US jurisdiction, most of the knowledgeable ones on here are UK based and those with qualifications, myself included, are not able to give advice to US persons. So anything we said even generally may not be of much help.
I'd suggest seeking help from a US based firm.
I'd suggest seeking help from a US based firm.
PapaBear said:
My wife ... has a rental income of 1000ukp per month.
I was thinking about buying a UK rental property for 250K,
Since you're married, one spouse's property ownership counts for you both when it comes to a second property purchase for the 3% SDLT hike. That's realistically a year's income wiped out straight away, ignoring the tax position.I was thinking about buying a UK rental property for 250K,
You live in the US. So why are you looking to invest in the UK? Why not invest in the country you actually live in, and insulate yourself from forex fluctuations? If you think there are gains to be made in currency, then be more fluid - and use some of the money to actually trade in forex, rather than being tied tight to one particular exchange rate. It'll also make tax MUCH simpler, and that's before you take into account that FATCA means an increasing number of non-US financial institutions treat any significant links to the US a bit like leprosy. Or does "expat" imply that you're only a short-term immigrant to the US, and will be migrating back here on retirement?
steveatesh said:
" I have no kids. My wife does not work but has a rental income of 1000ukp per month. "
This being PistonHeads, to increase your position could you rent your wife out for a bit more do you think, maybe 1250ukp per month?
The problem with that is the OP has a depreciating asset. The rental value will inevitably decline year on year meaning a significant reduction in real terms against inflation. The best thing you can do OP is to sell the depreciating asset and use those funds to invest more wisely.This being PistonHeads, to increase your position could you rent your wife out for a bit more do you think, maybe 1250ukp per month?
500K in cash.....why
Not really a great time to rectify that, but at some stage you need to inflation proof it; TIPS , equity, probably diversity including some contrarian positions.
It is not clear whether you intend to retire in the US or UK, but US social Security is well worth having assuming you will have ten years to qualify at either 62 or 66.
Circa 2K per month. Which makes reaching your 35K much easier
The 500K, once invested, plus your current equities using a 3.5% draw should give you another 2K per Month.
Seeing as you have a few years to go, you should surpass your target easily, but all really depends on your DB and whether it will do what it is intended to do.
In other words are you SURE it will provide enough at an early retirement date when your DB projection is maybe for 60!!!!!
Early on a BD can have some drastic reductions.
Not really a great time to rectify that, but at some stage you need to inflation proof it; TIPS , equity, probably diversity including some contrarian positions.
It is not clear whether you intend to retire in the US or UK, but US social Security is well worth having assuming you will have ten years to qualify at either 62 or 66.
Circa 2K per month. Which makes reaching your 35K much easier
The 500K, once invested, plus your current equities using a 3.5% draw should give you another 2K per Month.
Seeing as you have a few years to go, you should surpass your target easily, but all really depends on your DB and whether it will do what it is intended to do.
In other words are you SURE it will provide enough at an early retirement date when your DB projection is maybe for 60!!!!!
Early on a BD can have some drastic reductions.
I would also advise you to read up on Social Security, it is really worth getting even though it will not be available for your intended date of retirement.
Even if you do not qualify on your own SS record, if your wife is a US citizen or qualifies even as a perm resident you can get half hers without affecting her SS pension. (free money)
You will still be entitled to a reduced UK Gov pension, albiet reduced. (or maybe full depending on contributions)
Even if you do not qualify on your own SS record, if your wife is a US citizen or qualifies even as a perm resident you can get half hers without affecting her SS pension. (free money)
You will still be entitled to a reduced UK Gov pension, albiet reduced. (or maybe full depending on contributions)
Thanks for comments. Especially the depreciating asset (Wife). I told MrsBear and she had some non-constructive Feedback. I’ll try and up her rental rate in the short term.
Some clarifications…
I am a UK citizen on Temp work Visa in US. Probably for 3 – 5 years. My Wife is not a UK citizen, her property is in Asia
I’ve been expat for 15years in Asia, Canada and South America. I’m never in a country long enough to buy property and prices are dropping in the State I’m living in. Coupled to high land taxes and sales taxes, I prefer to rent
500K cash is from windfall and some lazy investing.
I don’t know where I will retire to but will maintain some presence in UK. I have full NI stamp.
I’m looking to invest in UK because I’m still paid in pounds UK
Some clarifications…
I am a UK citizen on Temp work Visa in US. Probably for 3 – 5 years. My Wife is not a UK citizen, her property is in Asia
I’ve been expat for 15years in Asia, Canada and South America. I’m never in a country long enough to buy property and prices are dropping in the State I’m living in. Coupled to high land taxes and sales taxes, I prefer to rent
500K cash is from windfall and some lazy investing.
I don’t know where I will retire to but will maintain some presence in UK. I have full NI stamp.
I’m looking to invest in UK because I’m still paid in pounds UK
An interesting issue here: Whilst you are a British citizen, in the eyes of both the US & UK authorities you are considered a US person based on the information you have given here.
Whilst it does not stop you investing in the UK and even with UK investment companies, many of them are scared of possible issues with US authorities so do not allow 'US persons' to invest.
However, it is not against any US rules for a US person to invest in overseas investments but there are strict rules about investment companies marketing to US persons when the US person is in a US jurisdiction. Investment companies that are not regulated by the SEC cannot send anything that could be construed as an offer to someone who is in any US jurisdiction. Basic valuations of your investments would be fine to be sent although to avoid the SEC thinking the company was touting for new business it wouldn't be a great idea to send a detailed report of what had been going on with the portfolio.
So, if you were in the UK at the time of getting advice, both you and the UK adviser would actually be complying with the SEC rules and there would not be an issue. But, most believe they cant do it and many investment companies just say no to avoid complications.
No, a caveat on what I have said above. There may have been changes in the US in recent years. I spent a lot of time working with the SEC in Washington for a major UK financial institution that was working with British Expats all over the world and was thrown by this blanket refusal by many UK investment companies to deal with anyone considered a US person.
Whilst it does not stop you investing in the UK and even with UK investment companies, many of them are scared of possible issues with US authorities so do not allow 'US persons' to invest.
However, it is not against any US rules for a US person to invest in overseas investments but there are strict rules about investment companies marketing to US persons when the US person is in a US jurisdiction. Investment companies that are not regulated by the SEC cannot send anything that could be construed as an offer to someone who is in any US jurisdiction. Basic valuations of your investments would be fine to be sent although to avoid the SEC thinking the company was touting for new business it wouldn't be a great idea to send a detailed report of what had been going on with the portfolio.
So, if you were in the UK at the time of getting advice, both you and the UK adviser would actually be complying with the SEC rules and there would not be an issue. But, most believe they cant do it and many investment companies just say no to avoid complications.
No, a caveat on what I have said above. There may have been changes in the US in recent years. I spent a lot of time working with the SEC in Washington for a major UK financial institution that was working with British Expats all over the world and was thrown by this blanket refusal by many UK investment companies to deal with anyone considered a US person.
UKShooter.... Good roundup of my situation. All investment companies have dropped me like a hot potato and my bank don't want to know despite the bulk of my income and savings being channeled through their "Premier" account. (Mortgage companies also don't want to touch my colleagues in the same circumstances and most have omitted to say they are working in US and subject to US tax)
I have been working with a specialist expat UK FA but the fund charges (+/-2%) seem fairly high, thus my 60% / 20% / 20% split plan i.e. 60% rental property / 20% low cost passive fund / 20% Managed Fund. I still need to find a vendor for the passive fund or just not tell them I'm subject to US taxes
I have been working with a specialist expat UK FA but the fund charges (+/-2%) seem fairly high, thus my 60% / 20% / 20% split plan i.e. 60% rental property / 20% low cost passive fund / 20% Managed Fund. I still need to find a vendor for the passive fund or just not tell them I'm subject to US taxes
PapaBear said:
UKShooter.... Good roundup of my situation. All investment companies have dropped me like a hot potato and my bank don't want to know despite the bulk of my income and savings being channeled through their "Premier" account. (Mortgage companies also don't want to touch my colleagues in the same circumstances and most have omitted to say they are working in US and subject to US tax)
I have been working with a specialist expat UK FA but the fund charges (+/-2%) seem fairly high, thus my 60% / 20% / 20% split plan i.e. 60% rental property / 20% low cost passive fund / 20% Managed Fund. I still need to find a vendor for the passive fund or just not tell them I'm subject to US taxes
As a "US Person" you should not invest in a Fund that does not comply with the SEC rules.I have been working with a specialist expat UK FA but the fund charges (+/-2%) seem fairly high, thus my 60% / 20% / 20% split plan i.e. 60% rental property / 20% low cost passive fund / 20% Managed Fund. I still need to find a vendor for the passive fund or just not tell them I'm subject to US taxes
Funds for US People (those subject to US Taxation) must distribute their internal capital gains to the shareholders.
Each year, usually mid December long CGs, short CGs and income are distributed and should be included in your 1040
It's not as bad as it sounds, as any tax distributions that are reinvested raise the cost basis and sort of pre pay your eventual CG liability.
CG taxation is different in the US, long CGs those over one year are subject to 15% tax. For those under the 25% tax bracket long CGs are tax free.
Short CGs are subject to tax at your current income rate. (WE have no CG allowance like UK)
Fund Managers will try to limit Short CGs.
Different types of funds will produce very different dists.
eg an index fund will produce minimal annual distributions, whereas something like a managed healthcare fund may chuck out quite a lot after being favoured by the Affordable care act.
So buying a fund like Healthcare in November could saddle you with other peoples Cap Gees (not so bad 2016)
Understanding the system can save you thousands.
I have partly touched on the real battle currently going on in the US. Earned income is taxed more than investment income, high earners and business pay a lot.
Investors can achieve quite low tax rates. A past presidential candidate who worked at Bain Capital released his returns, he paid net 9%.
Democrats while always saying the support the workers would have almost certainly maintained the tax status quo, which is why they have the support of the mega rich like Gates and Soros and receive massive amounts from Bear Sturns.
Trump says he will "adjust" the tax system.....very scary for some.
I have digressed, sorry
May I suggest admiral shares of Vanguard VTSAX (low distributions)
Thanks, Jeff. I had been trying to avoid local US investments because it would mean transferring funds from UK to US which will cost. Another reason being that I may have to pull out from US at short notice, my contract is short notice. I work in the Personal Security Industry which is very transient
I declare all my current assets and UK investments to the IRS and plan to carry on. I have a local and UK Tax adviser (Same Company) and will check off any potential Funds. Thanks for the Tax heads-up on CG. I wonder if i could be double dipped by UK / US?
As you stated Jeff, it doesn’t seem the best time to rectify a cash situation by coming into Equities but as you point out, I need to try and inflation proof it. I’m still leaning towards some 60% UK Property (holiday let), 20% passive UK fund (SEC Friendly) and a 20% US fund (e.g. Vanguard VTSAX)
I declare all my current assets and UK investments to the IRS and plan to carry on. I have a local and UK Tax adviser (Same Company) and will check off any potential Funds. Thanks for the Tax heads-up on CG. I wonder if i could be double dipped by UK / US?
As you stated Jeff, it doesn’t seem the best time to rectify a cash situation by coming into Equities but as you point out, I need to try and inflation proof it. I’m still leaning towards some 60% UK Property (holiday let), 20% passive UK fund (SEC Friendly) and a 20% US fund (e.g. Vanguard VTSAX)
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