Retiring abroad in 2021 - investment advice sought

[Didymograptus]

Hello Bogleheads,

I'm looking for advice regarding where you'd allocate your investments in my position.

Wife and I turned 60 a few months ago and I work for an international company in Texas but am on the local payroll. I plan on retiring in April 2021 - I'll be 61 1/2. Wife retired a few years ago. I have dual nationality (US/UK) and have worked in the US since 2001 as a result of which I have built up about $1.1m in my company 401k/MPP/IRA (all tax deferred & no Roth).

My plan is to move back to the UK and live on the retirement saving until 66 when my wife and I will apply for Social Security (estimated jointly $31360/annum), as well as my UK private pension (estimate $10000/annum) and the UK state pension (estimate jointly $19000/annum) - all index linked. Our spending in retirement would be about $75,000 before tax at current prices so we'd top up the spending needs, about $15k/annum, from the IRA. We have no mortgage and would have minimal health costs (UK National Health Service).

Our Social Security is subject to the Windfall Elimination Provision and has been adjusted accordingly above via the MaximizeMySocialSecurity program.

Upon retirement the 401k and Money Purchase Plan funds will move to the IRA (allocating to the 10 IRA funds) with the SVF funds being kept as cash or short term bonds for spending up until we get Social Security and other pensions. I'm happy with an overall 50/50 stock/bond ratio - or thereabouts.

I have tried to spread the risk, particularly in the IRA, as widely as possible across the Callan periodic table knowing that there would be significant currency risk if I maintained the typical Boglehead 3-fund portfolio with a strong domestic bias and there may be periods when US markets are not in synch with European or Emerging markets.. I have no way of knowing what will do well or badly at any given time hence the spread of investments.

Current retirement assets
I have the following in my IRA - I wanted to diversify:

• ISHARES ESG MSCI EAFE ETF (0.20%) ESGD $74,048
  VANECK VECTORS J.P. MORGAN EM LOCAL CRRNCY BOND ETF(0.30%) EMLC $71,904
  VANGUARD FTSE EMERGING MARKETS ETF (0.12%) VWO $71,487
  VANGUARD FTSE EUROPE ETF (0.09%) VGK $72,783
  VANGUARD GLBAL EX US REAL ESTATE ETF (0.12%) VNQI $71,870
  VANGUARD HIGH DIVIDEND YIELD ETF (0.06%) VYM $73,807
  VANGUARD INTERNATNL HGH DIV YLD ETF (0.32%) VYMI $71,134
  INVESCO OPPENHEIMER INTL BOND FD CL A (0.90%) OIBAX $72,134
  PGIM GLOBAL TOTAL RETURN Z (0.63%) PZTRX $71,782
  SCHWAB US AGGREGATE BOND INDEX FD (0.04%) SWAGX $73,307

Total $725K

My 401k contains:

• TRP STABLE VALUE FUND - N (0.20%) $17,570
  VANGUARD INST INDEX (0.04%) VINIX $12,516
  VANGUARD TOTAL BOND INDEX ADM (0.05%) VBTLX $17,791
  VANGUARD TTL INT STOCK IND ADM (0.11%) VTIAX $12,069

Total $60k

My Money Purchase Plan contains:

• INVESCO OPPENHEIMER DEV MKTS Y (1.10%) ODVYX $15,632
  TRP STABLE VALUE FUND - N (0.20%) $119,894
  VANGUARD EQUITY INCOME ADM (0.18%) VEIRX $15,456
  VANGUARD EXT MARKET INDEX INST (0.06%) VIEIX $15,710
  VANGUARD INST INDEX (0.04%) VINIX $31,525
  VANGUARD TOTAL BOND INDEX ADM (0.05%) VBTLX $30,019
  VANGUARD TTL INT STOCK IND ADM (0.11%) VTIAX $77,964

Total $307k

I will add about another $50k to the above in my 2020/2021 401k and MPP contributions and company matches.
Wife has no retirement savings to speak of apart from US and UK social security.

Additionally we have 3 months cash emergency funds - Ally and Schwab Money Mkt.

So here's my question - given my circumstances would you adopt a 10-fund strategy in the IRA going into and throughout retirement? If not what would be your approach to spread risk (capital and currency)? Any advice most gratefully received.

[def6732]

Sorry, but I can’t answer your question specifically, but I do have some thoughts about your situation.
Have you contacted the company that will hold your US funds to see what they will do when you live in the UK? I have heard of US financial companies freezing accounts when resident abroad. I have read that International Brokers and Schwab will work with a US citizen resident abroad, and maybe there are others. Once your funds are in an IRA you could move them to another institution with different options, maybe hedged to the UK pound.
Have you considered the effect of US taxes (which you will have to continue to declare) and UK tax? How will the UK will treat your US IRA income?
The limitation on UK investment options investment/banking options due to being a US citizen?
UK NHS healthcare will take one variable off the table.

[Didymograptus]

def6732, thanks for your comments.

My workplace retirement funds are at T. Rowe, whereas my IRA is at Schwab, and as you mention Schwab take a more kindly view towards US citizens abroad. I haven't seen much in the way of funds hedged to the pound at Schwab which is why I have spread the risk across a spectrum of world currencies. I can buy UK or European dominated stock funds but bond funds are limited to non-existent.

Yes, taxes will be a challenge at least initially and I'll probably have to pay someone knowledgeable in US/UK tax to do it for me for the first few years until I get the hang of it. I know that U.S. Social Security benefits received by US citizens residing in the UK are exempt from tax in the United States and are taxable only in the UK. The UK State Pension and IRA distributions are taxable in both countries however the Foreign tax credit can be applied to eliminate double taxation.

Regarding the limitation on UK investment options investment/banking options due to being a US citizen, I don't think there will be any problem for us. We'll keep everything very simple - pensions, Social Security and distributions from the IRA - no brokerages or fancy investment schemes on that side of the pond. I already have a current account over there that I use for making voluntary contributions to the UK state pension and for family support.

[ivk5]

Suggest looking up TedSwippet's thread on his gradual Roth conversions as an NRA. I don't have first-hand experience but it seems there's a lot of variation between custodians as to whether they handle the W-8BEN correctly.

[Admiral]

Hello Bogleheads,

I'm looking for advice regarding where you'd allocate your investments in my position.

Wife and I turned 60 a few months ago and I work for an international company in Texas but am on the local payroll. I plan on retiring in April 2021 - I'll be 61 1/2. Wife retired a few years ago. I have dual nationality (US/UK) and have worked in the US since 2001 as a result of which I have built up about $1.1m in my company 401k/MPP/IRA (all tax deferred & no Roth).

My plan is to move back to the UK and live on the retirement saving until 66 when my wife and I will apply for Social Security (estimated jointly $31360/annum), as well as my UK private pension (estimate $10000/annum) and the UK state pension (estimate jointly $19000/annum) - all index linked. Our spending in retirement would be about $75,000 before tax at current prices so we'd top up the spending needs, about $15k/annum, from the IRA. We have no mortgage and would have minimal health costs (UK National Health Service).

Our Social Security is subject to the Windfall Elimination Provision and has been adjusted accordingly above via the MaximizeMySocialSecurity program.

Upon retirement the 401k and Money Purchase Plan funds will move to the IRA (allocating to the 10 IRA funds) with the SVF funds being kept as cash or short term bonds for spending up until we get Social Security and other pensions. I'm happy with an overall 50/50 stock/bond ratio - or thereabouts.

I have tried to spread the risk, particularly in the IRA, as widely as possible across the Callan periodic table knowing that there would be significant currency risk if I maintained the typical Boglehead 3-fund portfolio with a strong domestic bias and there may be periods when US markets are not in synch with European or Emerging markets.. I have no way of knowing what will do well or badly at any given time hence the spread of investments.

Current retirement assets
I have the following in my IRA - I wanted to diversify:

• ISHARES ESG MSCI EAFE ETF (0.20%) ESGD $74,048
  VANECK VECTORS J.P. MORGAN EM LOCAL CRRNCY BOND ETF(0.30%) EMLC $71,904
  VANGUARD FTSE EMERGING MARKETS ETF (0.12%) VWO $71,487
  VANGUARD FTSE EUROPE ETF (0.09%) VGK $72,783
  VANGUARD GLBAL EX US REAL ESTATE ETF (0.12%) VNQI $71,870
  VANGUARD HIGH DIVIDEND YIELD ETF (0.06%) VYM $73,807
  VANGUARD INTERNATNL HGH DIV YLD ETF (0.32%) VYMI $71,134
  INVESCO OPPENHEIMER INTL BOND FD CL A (0.90%) OIBAX $72,134
  PGIM GLOBAL TOTAL RETURN Z (0.63%) PZTRX $71,782
  SCHWAB US AGGREGATE BOND INDEX FD (0.04%) SWAGX $73,307

Total $725K

My 401k contains:

• TRP STABLE VALUE FUND - N (0.20%) $17,570
  VANGUARD INST INDEX (0.04%) VINIX $12,516
  VANGUARD TOTAL BOND INDEX ADM (0.05%) VBTLX $17,791
  VANGUARD TTL INT STOCK IND ADM (0.11%) VTIAX $12,069

Total $60k

My Money Purchase Plan contains:

• INVESCO OPPENHEIMER DEV MKTS Y (1.10%) ODVYX $15,632
  TRP STABLE VALUE FUND - N (0.20%) $119,894
  VANGUARD EQUITY INCOME ADM (0.18%) VEIRX $15,456
  VANGUARD EXT MARKET INDEX INST (0.06%) VIEIX $15,710
  VANGUARD INST INDEX (0.04%) VINIX $31,525
  VANGUARD TOTAL BOND INDEX ADM (0.05%) VBTLX $30,019
  VANGUARD TTL INT STOCK IND ADM (0.11%) VTIAX $77,964

Total $307k

I will add about another $50k to the above in my 2020/2021 401k and MPP contributions and company matches.
Wife has no retirement savings to speak of apart from US and UK social security.

Additionally we have 3 months cash emergency funds - Ally and Schwab Money Mkt.

So here's my question - given my circumstances would you adopt a 10-fund strategy in the IRA going into and throughout retirement? If not what would be your approach to spread risk (capital and currency)? Any advice most gratefully received.

You have very little need to take risk, as your portfolio draw, based on your other guaranteed sources of income, will be very low. 15k is 1.3% of $1.1m. Your portfolio strikes me as overly, needlessly complicated, based on your needs. I would aim for a three fund portfolio, and spend the interest from the bond portion. I don't think you need international bonds. I certainly would not pay nearly 1% ER for "INVESCO OPPENHEIMER INTL BOND FD CL A (0.90%)" whatever that is. Get rid of it.

See the wiki for information on the three-fund portfolio. All these funds and fees are eating away at your returns.

[Didymograptus]

Admiral, thank you very much for your thoughts.

By my reckoning I'll need just over 5 years to support my wife and I from the IRA so $75k IRA withdrawal * 5.3 years = $400k
Subtracting that from IRA will give me about $750k (I added the $50k 2020 contribution)- so $15k would be 2%. Still a pretty low draw.

I can clearly see the benefit of a 3-fund portfolio were I to stay in the US, but currency fluctuations could really put a dent in US-centric investments and so the standard, domestic stock, international stock and US bond allocation concerns me - which is why I posted my question in the first place.
I'll reflect on your post some more. Thanks

[Admiral]

Admiral, thank you very much for your thoughts.

By my reckoning I'll need just over 5 years to support my wife and I from the IRA so $75k IRA withdrawal * 5.3 years = $400k
Subtracting that from IRA will give me about $750k (I added the $50k 2020 contribution)- so $15k would be 2%. Still a pretty low draw.

I can clearly see the benefit of a 3-fund portfolio were I to stay in the US, but currency fluctuations could really put a dent in US-centric investments and so the standard, domestic stock, international stock and US bond allocation concerns me - which is why I posted my question in the first place.
I'll reflect on your post some more. Thanks

Currency fluctuations would not concern me, as they would likely be immaterial to you based on such a small draw. Your US holdings are going to be denominated in dollars. Having said that, I certainly would do nothing until the Brexit situation is resolved, one way or the other. I would expect that the pound will continue to fall vs the dollar, but that's just my speculation.

EDIT TO ADD: Your worries about domestic holdings are immaterial to the fact that you hold too many funds that have high expenses.

[ivk5]

Equities can be one total world fund. (Trading currency is just a practicality, obviously doesn't affect currency risk.) I agree that one should not have a US "home country bias" if intending to retire outside the US, but I don't see the need for slice-and-dice, nor for the high expenses noted above.

Fixed income is a bit trickier, especially as a US person. The SVF may still make sense, but I would otherwise want to shift to GBP-based fixed income as soon as possible. Not sure of options there - funds may be a nonstarter (PFIC) - but maybe combination of bank deposits, gilts, etc.

As mentioned, strategic Roth conversion may produce significant tax savings, at least in the period before starting SS and pensions.