Need Help to FIRE in Thailand

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ThaiSmile
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Need Help to FIRE in Thailand

Post by ThaiSmile » Sun Apr 15, 2018 10:25 am

Greetings and many thanks for taking a look at my scenario. Investing super novice here. 4 months ago the Mr. Money Mustache site opened my eyes to the possibility of FIRE and I have been reading boards, blogs and sites to understand the basics. Until I ran my numbers through FIRECALC, I just assumed it was work until mandatory retirement. It has been a major haul to get myself in order to the point I could present this humble request for the Brains of the Board to take a look at my scenario. It’s as thorough as I could be, so apologies if too much or too little detail.

Background: US citizen currently working in Thailand. In Asia 28 years. Prior have worked in Philippines, Vietnam, Singapore and Japan. Married to Japanese national (not a citizen or Green Card holder) who is a full-time housewife. No kids.
Age: Me – 51. Spouse – 56.
Tax Filing Status: Married Filing Jointly.
Tax Rate: 25% US Federal for US tax exposure // 0% State as I am not a resident
Debt: None.
US Retirement: Will not be eligible for US Social Security or Medicare.
Housing and Core Costs: Rent = USD 2000/month. Utils/Cable/Internet/Mobile = USD 500/month. This could be reduced, but our apartment is in the center of Bangkok, so no need for car and can use public transport. Our apartment provides all maintenance, so no cost for furniture, major appliances, aircon maintenance, etc. We plan to be renters for life.

[ A ] Situation: Employed relatively happily. My post-Thailand/US tax income is USD 100k/year. I would prefer to work another 8.5 years until 60 (which is mandatory retirement age here and will garner a generous payout from Megacorp), but there is a higher probability that I will be retrenched before that (with a post-tax payout of about USD250k). In the event I get retrenched, I want to be pre-positioned to pull the plug and FIRE in Thailand. With that in mind, I have been taking prep steps such as setting up bank accounts, getting local credit cards and preparing paperwork for Retirement Visas.

[ B ] Current Assets/Benefits:
(1) Cash – USD 1.1m. 80% in Singapore. 20% in US. 5% in Thailand. I plan to repatriate most of the Singapore account to US as the exchange rate is favorable, so will have USD 1m cash in US shortly. Why so much cash? Until now, I just didn’t know where I would be working next nor where I would choose to retire, so I kept everything liquid if I wanted to purchase a property (which I now know I won’t do). If I stay in Thailand, will need to keep USD 50k (25k + 25k) in bank as a guarantee condition of my/spouse’s retirement visa, so the 5% of Thailand cash will be parked here along with living money.
(2) Singapore Central Provident Fund – USD 425k cumulative for my/spouse accounts. CPF is Singapore government retirement savings account. As we turn 65, the account is annuitized and will be paying minimum 12k/year for my spouse and 18k/year for me, so basically USD 30k/year from 2032. These payments will be paid for life, will be inflation-adjusted +2% annually, have death benefit until 80yo and be tax free (I have been paying US tax on contributions and interest, so no more US tax burden). Having this payout in Singapore Dollars is also a more stable Asian currency against the Thai Bhat.
(3) Thailand Retirement Accounts – USD 100k. These are company-sponsored Roth-type IRAs invested in Thailand exchange stock/bond funds. These will not be taxed in Thailand and will only be US taxed for withdrawal of capital gains as I already pay US taxes on company matching contributions. I am growing this by USD 40k/year of contributions. Similar to Roth IRA, these accounts cannot be used until I am 60yo.
(4) Megacorp’s Stock Purchase and Matching – USD 75k of a single international stock. Starting in 2019 matching shares will start to vest, so this will grow by USD40-50k/year with purchases and vesting. #3 and #4 give me a good chunk of international exposure.
(5) TOTAL Current Nest Egg = 425k + 1.1m + 100k + 75K = USD 1.7m.
(6) Medical: While employed, myself/spouse covered by local company-sponsored medical insurance. If I FIRE, as part of CPF in Singapore I have USD 50k in what is known as Medisave (roughly equivalent to a US HSA account). The perpetual interest on this account pays for MediShield policies for both of us (nearly equivalent to Medicare), so if one of us needs major surgery, we could get it done in Singapore. Otherwise, we will self-insure. Costs of first-class medical care is cheap and Thailand is a global medical tourism hub. To compare, both my mother and wife had spinal fusion surgery 3 years ago – the cost in the US was USD 110k for my mom and the cost in Thailand was USD 11k for my wife. Same situation with prescription drugs – fraction of the price.

[ C ] The Challenge:
(1) I have set up accounts at Vanguard, Schwab and Fidelity. Schwab/Fidelity looks optimal for me because of the 24/7 phone/chat service and fee-free access to overseas ATM withdrawals. VG is really my preference, but they are closed during Asia daytime hours and their site is forever under maintenance during these hours, not to mention that their operations seem to be geared for the pre-Internet pre-App era. I will probably use multiple providers based on their specific product strengths. VG will play a part for the stuff I just want to buy and forget.
(2) Every US-based investment I make will only be eligible for a taxable brokerage account as US IRAs require US earned income. Foreign earned income is ineligible and my gross income is slightly too high, so no Roth or Traditional IRAs. So managing taxes is a big consideration (I have read the Boglehead guide on tax placement considerations), but specific recommendations would be appreciated.
(3) I work on very risk-averse scenarios. I have gotten my nest egg the hard way and if/when we FIRE, we will be on our own in a foreign country with zero family/friends that would bail us out, so every scenario I have calculated for 40-year spans to 100% success in FIRECALC with spare (which I have not included above). As I see the market right now, equities are super high CAPE bouncing on the Trumpoline and I believe will suffer if political environment degrades. At the same time, rising interest rates are depressing bond fund NAVs. I want to virtually remain on the sideline until the big spurt of interest rate hikes completes this year and the mid-term elections show any change.
(4) Expected Spending (Worst Case) if Megacorp retrenches me tomorrow: USD 5,000/month, inclusive of housing/core costs, so USD 2,500/month discretionary. Current nest egg supports this 100% in FIRECALC. In fact, if I include the USD 250k post-tax retrenchment package (have already quietly confirmed my rights with HR), monthly is USD 5,500/month at 100% in FIRECALC.
(5) Expected Spending (Best Case) if I can make it to 60yo retirement: USD 7,000/month, inclusive of housing/core costs, so USD 4,500/month discretionary. Current nest egg needs to grow about USD 700k by age 60 for this to be 100% in FIRECALC. This would support a heavy foreign travel lifestyle as we love to see new places. As we get into twilight years, this extra spend will fund caregivers in lieu of a nursing home.
(6) Note that Thailand is a very reasonable inflation economy. It is possible to live very extravagantly, but also very easy to tone down lifestyle.

[ D ] WHERE I NEED ADVICE:
(1) FIRECALC assumes 75/25 stock index to bond fund ratio, which I believe has an assumption on return. This is what I don’t know and thus my key question. How do I convert the Cash part of my assets into a portfolio while making the most principal-preserving steps given my risk-averse views? I just can’t dump everything into 75% VTSAX and 25% VBTLX, at least not without feeling like a gambler. Here are some of my thoughts…
(2) I can see plenty of options now for 2% 1-year term to 3% 5-year term CDs (up to 3.4% on 10-year term). Does it make sense to put the whole lot in a CD ladder (heavy on 6-12 month for a 2% return) with the balance in 2-5 year for a circa 2.6% return)? Can just having CDs work out in a worst case scenario?
(3) My other thought was to do a large scale version of dollar cost averaging by putting 100-150k/year into stock index while keeping the rest in CD ladders. If the stock market tanks, then I can even consider to break a couple CDs to get into equity quicker (and hopefully cheaper). This way after 5 years I will get to 50-60% stocks and then have the rest in CDs or bonds such as iBonds/etc. In the intervening years, I get predictable CD return and don’t lose any sleep.
(4) Any other ideas or advice? I see this whole thing as a hot tub that I want to ease into. Diving into the deep end is damn scary. I appreciate that I can’t expect returns without risk and don’t expect there are any magic bullets. Just looking for conservative pathways.

Much appreciated for reading through my mini-tome and will be very grateful for insights. 8-)

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warowits
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Re: Need Help to FIRE in Thailand

Post by warowits » Sun Apr 15, 2018 11:21 am

You have more than enough to retire in Tailand. If you are ultra conservative, sure you can do it all with a CD ladder. I would consider some amount of market exposure though, at least 25%. You could dollar cost average that in if you like.
There are an army of people whose pay checks depend on convincing people to invest in ways that are against their self interest. This forum is the volunteer army that fights back!

ThaiSmile
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Re: Need Help to FIRE in Thailand

Post by ThaiSmile » Mon Apr 16, 2018 3:25 am

warowits wrote:
Sun Apr 15, 2018 11:21 am
You have more than enough to retire in Tailand. If you are ultra conservative, sure you can do it all with a CD ladder. I would consider some amount of market exposure though, at least 25%. You could dollar cost average that in if you like.
@warowits: Many thanks for the reply and advice. Would you have any advice for the most tax-efficient methods for market exposure and any other methods to defer tax exposure?

AlohaJoe
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Re: Need Help to FIRE in Thailand

Post by AlohaJoe » Mon Apr 16, 2018 5:51 am

My standard advice to those considering retiring in SE Asia: don't cut it too close on spending. Though all the governments in the area have done much better in the past few years, historically inflation has been a bit higher than US/Euro areas. You say you get a inflation-adjusted pension from Singapore....but that'll be adjusted according to Singaporean inflation. But your rental unit will go up according to Thai inflation. Even if the discrepancy is only 1-2% a year...over 40 years that adds up to quite a lot. The same holds for a US-based CD ladder. You'll be getting interest rates based on low US rates but you'll be using the money to pay for (potentially higher) Thai inflation on your cost of living.

A friend's father early retired in Thailand. He said that quite a few of his fellow early retirees ended up getting crushed by local inflation as their European pensions didn't keep up. They had to return back to Europe and move in with the kids.

Using tools like Firecalc in foreign countries is, while not totally wrong, a bit fraught, because it is using the "wrong" CPI.

To your "where you need advice":

Keeping it all in CDs is probably a bad idea. Most research suggests you need at least ~30% equities to last 30 years. Since you're talking about 40 years and have the additional risk of investing not in your local currency, it seems unwise to go any lower. I understand not wanting to lump sum your entire nest egg but you should come up with a dollar cost averaging plan (spread out over 6-18 months feels about right; don't take 5 years to do this).

Everyone always talks about "if the market drops I can buy in" but the reality we've seen on this forum over and over again is that (almost) no one does that. Once the market goes down, people get scared and think it will go down more and are afraid to invest.

ThaiSmile
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Re: Need Help to FIRE in Thailand

Post by ThaiSmile » Mon Apr 16, 2018 11:49 am

AlohaJoe wrote:
Mon Apr 16, 2018 5:51 am
My standard advice to those considering retiring in SE Asia: don't cut it too close on spending. Though all the governments in the area have done much better in the past few years, historically inflation has been a bit higher than US/Euro areas. You say you get a inflation-adjusted pension from Singapore....but that'll be adjusted according to Singaporean inflation. But your rental unit will go up according to Thai inflation. Even if the discrepancy is only 1-2% a year...over 40 years that adds up to quite a lot. The same holds for a US-based CD ladder. You'll be getting interest rates based on low US rates but you'll be using the money to pay for (potentially higher) Thai inflation on your cost of living.

A friend's father early retired in Thailand. He said that quite a few of his fellow early retirees ended up getting crushed by local inflation as their European pensions didn't keep up. They had to return back to Europe and move in with the kids.

Using tools like Firecalc in foreign countries is, while not totally wrong, a bit fraught, because it is using the "wrong" CPI.

To your "where you need advice":

Keeping it all in CDs is probably a bad idea. Most research suggests you need at least ~30% equities to last 30 years. Since you're talking about 40 years and have the additional risk of investing not in your local currency, it seems unwise to go any lower. I understand not wanting to lump sum your entire nest egg but you should come up with a dollar cost averaging plan (spread out over 6-18 months feels about right; don't take 5 years to do this).

Everyone always talks about "if the market drops I can buy in" but the reality we've seen on this forum over and over again is that (almost) no one does that. Once the market goes down, people get scared and think it will go down more and are afraid to invest.
@AlohaJoe: Agree with not cutting it close in a foreign country. I am building in buffer as I won't have any kids to move in with if things go south. I see a lot of retirees ending up in a rather sorry state here, but I won't go into my observations of the root causes.

Agree I need to get into equities. Clearly I need to have some position. Are there any suggestions on equities/bonds that can avoid federal income tax exposure? While I am still working, but biggest drain is Federal tax. Thanks for any advice. :sharebeer

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Kevin M
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Re: Need Help to FIRE in Thailand

Post by Kevin M » Wed Apr 18, 2018 12:56 pm

AlohaJoe wrote:
Mon Apr 16, 2018 5:51 am
Keeping it all in CDs is probably a bad idea. Most research suggests you need at least ~30% equities to last 30 years.
Depends on your withdrawal rate. At 2% you can go 50 years with 0% real return, and you can do better than that (at least out to 30 years) in a TIPS ladder. Still, I wouldn't disagree that 30% in equities is a reasonable lower limit for long time horizons.
Everyone always talks about "if the market drops I can buy in" but the reality we've seen on this forum over and over again is that (almost) no one does that. Once the market goes down, people get scared and think it will go down more and are afraid to invest.
This is a good argument for some sort of value averaging approach. You get something in now, then if stocks tank, you have to add a lot more than if stocks are level or go up. If you can't stick with the strategy, then you know your willingness to take risk does not justify whatever target AA you are shooting for.

Kevin
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Koogie
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Re: Need Help to FIRE in Thailand

Post by Koogie » Wed Apr 18, 2018 1:10 pm

Nothing useful to add but you might like this guys blog. He is a member of another forum I am on and he early retired from the US to Thailand a while ago. And he writes well.

https://fourletternerd.wordpress.com/

ThaiSmile
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Re: Need Help to FIRE in Thailand

Post by ThaiSmile » Thu Apr 19, 2018 7:41 am

Koogie wrote:
Wed Apr 18, 2018 1:10 pm
Nothing useful to add but you might like this guys blog. He is a member of another forum I am on and he early retired from the US to Thailand a while ago. And he writes well.

https://fourletternerd.wordpress.com/
@koogie: Thanks for the share on the blog. The cost of living items were interesting and indicative of the swings that can happen with an illness. He seems committed to make the move from Thailand to Portugal, but does not mention any cause other than things getting monotonous... so would be interesting to see what he thinks Portugal will do to change the calculus. Hua Hin is a relatively sleepy beach town surviving mostly on tourism, so I wouldn't expect much (even the locals said this to me when we went there for an annual Away Day a couple years ago. Much appreciated. :beer

elderwise
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Re: Need Help to FIRE in Thailand

Post by elderwise » Thu Apr 19, 2018 8:59 am

Hi ThaiSmile,

I did not get a chance to fully read your long post, but I would advise you read up about US PFIC rules (no one mentioned them on the thread i noticed).

They can be onerous, and being a US Citizen permanently residing overseas and if you are vested in any way / means into any investment products that are not recognized under US tax treaty can be very taxing (including foreign pensions, foreign truts, insurance annuities etc).Big sam just makes it super complicated..

Hope this helps

-elderwise
Last edited by elderwise on Thu Apr 19, 2018 10:52 am, edited 1 time in total.

FoolishJumper
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Re: Need Help to FIRE in Thailand

Post by FoolishJumper » Thu Apr 19, 2018 9:52 am

elderwise wrote:
Thu Apr 19, 2018 8:59 am
They can be onerous, and being a US Citizen permanently residing overseas and if you are vested in any way / means into any investment products that are not recognized under US tax treaty can be very taxing (including foreign pensions, foreign truts, insurance annuities etc).Big sam just makes it super complicated..
I would second this and recommend that you probably need to meet with a CPA who specializes in PFICs - which can be extremely costly to own. Investing in US funds (so transferring money to the US at vanguard, fidelity, etc is a simple solution) or directly investing in individual stocks, which sounds like your #4, is another way to avoid PFICs. Basically most mutual funds and some annuties in foreign countries classify as PFICs and therefore required additional reporting (form 8621 in addition to form 8938, which I assume you already file in addition to your FinCEN form 114) and the process makes owning foreign funds rather costly. And a failure to file the form 8621 for a year removes the statute of limitations, so if the IRS notices in 25 years that you forgot to file that form in that year, they could go back 25+ years and charge a penalty (up to $10k per year in failure to file penalities plus any additional tax you may owe). The US is regularly increasing the requirements on foreign entities to report holdings of Americans, and you may not even know when they start to report what you hold to the US Dept. of Treasury - I know my bank in London had started to report me to the US back in 2015, and I only found out because a teller said something they weren't supposed to, and the bank manager apologized as bank policy was to not inform Americans of the additional reporting.

One thing that stuck me is you seem to think your Sing CPF would receive tax benefits on US tax. I know nothing about the specifics there, but the US generally doesn't recognize foreign tax benefits for retirement accounts, so I would be very surprised if the withdrawals are tax free (on your US taxes) from that account. Likely you would owe capital gains taxes (not income tax, as that acct is likely to be viewed as a taxable investment account by the IRS, so no different to if you investing in a fully taxable account in the US). The benefits you receive from a foreign govt. do not necessarily apply on US taxes.

HongKonger
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Re: Need Help to FIRE in Thailand

Post by HongKonger » Thu Apr 19, 2018 10:15 am

Why not utilise your wife's nationality? Does she have perm res status in Singapore? There must be a better way to structure things via an offshore company or some such.

ThaiSmile
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Re: Need Help to FIRE in Thailand

Post by ThaiSmile » Thu Apr 19, 2018 10:59 am

elderwise wrote:
Thu Apr 19, 2018 8:59 am
I did not get a chance to fully read your long post, but I would advise you read up about US PFIC rules (no one mentioned them on the thread i noticed).
Hi @elderwise and @FoolishJumper. Many thanks for that heads up. I consulted my tax CPA about these accounts and they do not fall under the definition of PFICs. I was worried about this when doing my tax questionnaire and we spent quite a bit of time during the consultation just to make sure of this point.

My US/overseas taxes have been done by a professional tax firm for a number of years previously (when I was on expat terms) and FBAR/Form 8938 have included all of my foreign accounts. Now every account that I create abroad requires FACTA paperwork, which is why the bank staff give a sour face when they see my US passport. I expect that all of my accounts held in overseas banks are reporting every last thing to the US government and I have even reported my Singapore CPF account on FBAR/8938 even though US FACTA reporting does not require it. So hopefully all covered.

For CPF, I do not believe that there are any tax benefits. In fact, I have paid US tax over the years on both employer contributions as well as annual earned interest (interest is the only "capital gain") received. So I will have have paid tax on every penny in that account, so I don't expect to pay another penny of tax when I start taking distributions. Again, I have discussed this with my tax CPA company which specializes in expat taxes. So again, hopefully all covered. 8-) For my other retirement-type accounts, I will get hit with tax for capital gains when I withdrawal.

Very good points and, honestly, my observation is that there are a million ways to screw up US tax as an expat, which is why tax professionals are priceless in my opinion. This year when I reviewed my filing, I noticed that they had the form for ACA exemption which my previous company-sponsored tax firm did not do. So even some experts may be more expert than others. Cheers and thanks!
Last edited by ThaiSmile on Thu Apr 19, 2018 11:13 am, edited 1 time in total.

ThaiSmile
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Re: Need Help to FIRE in Thailand

Post by ThaiSmile » Thu Apr 19, 2018 11:11 am

HongKonger wrote:
Thu Apr 19, 2018 10:15 am
Why not utilise your wife's nationality? Does she have perm res status in Singapore? There must be a better way to structure things via an offshore company or some such.
As soon as you elect to file US tax as Married - Filing Jointly, your spouse needs a US ITIN (tax ID number) and every account that they have must be reported on your tax. This election is irrevocable. My wife (not Singaporean BTW, but a permanent resident same as me), has only one CPF account in Singapore and I report it on my taxes. She also has to file a separate FBAR.

If I knew then what I know today, I might have structured things in a different way. In hindsight, I should have started with Married - Filing Separately and then all the 8938/FBAR requirements for my spouse would have not been needed. But I am where I am so putting things under my wife will not offer any benefits. Any other approach is fraught with risks and I will not risk a thing at this stage of the game. :beer

sfnerd
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Re: Need Help to FIRE in Thailand

Post by sfnerd » Thu Apr 19, 2018 11:29 am

Fellow US expat residing in Thailand (though a bit less than 2 years for me).

I would be more aggressive on the equities. You're going to be battling inflation, as another poster mentioned. The baht has moved like 10%+ against the dollar in the past year or so. While this will probably not go on forever, it does present a challenge once income stops. However, with your SGD pension plus 40-60% equities you will probably be fine.

Additionally, as you know, you can probably half your rent by moving into an equivalent place one or two BTS stops away :D Thailand is great that way.

Regarding accounts, I have Fidelity, Schwab, and Vanguard (in addition to others). Honestly, Fidelity and Schwab are my preferred accounts, but Schwab wins by a mile for expats. Fidelity and Vanguard are known to freeze accounts of people living outside of the US (don't tell them you are living abroad, and use a US VPN to connect while using their sites), while Schwab embraces expats. Also, they refund international ATM fees, which is amazing.

As long as you stay away from Nana Plaza it looks like you'll have a great and wealthy retirement :) Chok dee khrap!

:sharebeer

HongKonger
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Re: Need Help to FIRE in Thailand

Post by HongKonger » Thu Apr 19, 2018 12:05 pm

ThaiSmile wrote:
Thu Apr 19, 2018 11:11 am
HongKonger wrote:
Thu Apr 19, 2018 10:15 am
Why not utilise your wife's nationality? Does she have perm res status in Singapore? There must be a better way to structure things via an offshore company or some such.
As soon as you elect to file US tax as Married - Filing Jointly, your spouse needs a US ITIN (tax ID number) and every account that they have must be reported on your tax. This election is irrevocable. My wife (not Singaporean BTW, but a permanent resident same as me), has only one CPF account in Singapore and I report it on my taxes. She also has to file a separate FBAR.

If I knew then what I know today, I might have structured things in a different way. In hindsight, I should have started with Married - Filing Separately and then all the 8938/FBAR requirements for my spouse would have not been needed. But I am where I am so putting things under my wife will not offer any benefits. Any other approach is fraught with risks and I will not risk a thing at this stage of the game. :beer
I got that she was Japanese but thought Sing residence was better for tax purposes than Japan... as for your perception of risk in offshore companies then I guess nothing ventured nothing gained. Either you can go this route, or as the above poster mentions, you can not tell the US you are living abroad. Or just suck it up...pick your poison.

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HomerJ
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Re: Need Help to FIRE in Thailand

Post by HomerJ » Thu Apr 19, 2018 12:06 pm

ThaiSmile wrote:
Mon Apr 16, 2018 11:49 am
Agree I need to get into equities. Clearly I need to have some position. Are there any suggestions on equities/bonds that can avoid federal income tax exposure? While I am still working, but biggest drain is Federal tax. Thanks for any advice. :sharebeer
The basic Vanguard Total Stock Market Index fund is very tax-efficient. You'll get 2% in dividends each year, and you'll pay 15% on those (so 0.3% drag on your portfolio), but that's it.

You don't pay any other taxes until you sell, and then it's capital gains taxes which is also at 15%

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Hyperborea
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Re: Need Help to FIRE in Thailand

Post by Hyperborea » Thu Apr 19, 2018 1:09 pm

ThaiSmile wrote:
Thu Apr 19, 2018 11:11 am
As soon as you elect to file US tax as Married - Filing Jointly, your spouse needs a US ITIN (tax ID number) and every account that they have must be reported on your tax. This election is irrevocable.
It doesn't appear to irrevocable. You can elect to file as married filing separately. https://www.irs.gov/individuals/interna ... ien-spouse
"Plans are worthless, but planning is everything." - Dwight D. Eisenhower

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Kevin M
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Re: Need Help to FIRE in Thailand

Post by Kevin M » Fri Apr 20, 2018 1:09 am

Disclaimer: I know nothing about non-US resident investing, so everything I say is as if you were a US citizen residing in the US. You asked me via PM for inputs, otherwise I probably would not have replied to your post. It's too complex for me.

I recommend you read some books by William Bernstein and Larry Swedroe. You need to understand that it's your ability, willingness and need to take risk that should determine your asset allocation. Here is a short blog post I wrote some years ago that summarizes this, but you need to read more to understand it better: http://www.kevinoninvesting.com/2010/04 ... rance.html.

One thing I learned about from Bill Bernstein is value averaging, which is similar to dollar cost averaging, but forces you to add even more when stocks fall in value, and you add less if they increase in value. It may not be rational from a historical statistical perspective, but it is useful if you are scared to put a bunch into stocks now, and it gives you time to learn about your willingness to take risk, and even increase it. I was using this approach when 2008 hit, and I was glad I did.

So instead of just saying you'll put $X into stocks each year, you set a growth target--it can be monthly, quarterly annually or whatever, with the goal of ending up at a certain allocation to stocks. If stocks increase enough to meet your growth target, you add nothing. If they're flat, you add your growth target. If they tank, you have to add a lot more. If you can't do that, then you've learned something about your willingness to take risk, and maybe your target stock allocation is too high. Do this over several years to increase the chance that you'll be doing it when a bear market hits, since this is what you need to really understand your willingness to take risk.

In the meantime you can use CDs, Treasuries, money markets, savings accounts, or whatever makes the most sense to you, with the goal of having enough to add to stocks as necessary, as well as to provide money you'll need if stocks have an extended period of poor performance.

There is no US federal 25% tax bracket now. So if you were in 25% last year, it's probably 22% this year. At that tax rate with no state tax, taxable fixed income probably is OK, as tax exempt securities probably are priced to be competitive with taxable fixed income at that tax rate. Be sure to understand your marginal tax rate though, as it may not be the same as your tax bracket. I will be in the 12% federal tax bracket, but my federal marginal tax rate will be 27%, due to pushing qualified dividends from 0% to 15% tax rate.

So if federal marginal tax rate is 22% with no state income tax, then CDs probably are fine in taxable for maturities of two years or longer. Out to one year maturity, you'll probably do as well or better with US Treasuries right now, so I would use Treasuries out to one-year maturity, due to better liquidity.

As I said in PM, I would not go beyond 3-year maturity with CDs now, because yield curve flattens out too much beyond that, and you don't get enough extra yield to justify the extra term risk. Larry Swedroe's guideline is to extend maturity only if you can get at least 20 basis points (bps) of extra yield per extra year of maturity.

With new-issue 1-year CD at 2.20%, you get about 40 bps of extra yield relative to Prime money market at 1.78%, so quite good. You might get a bit more with 1-year Treasury, so even better. With 2-year new issue CD at 2.65%, you get 45 bps for extending from 1-year to 2-year, so quite good. Two-year Treasury is about 2.45%, so CD is 20 bps higher. With 3-year new issue at 2.85%, you get 20 bps, so just barely enough. Three-year Treasury is about 2.6%, so CD is about 25 bps more. With 5-year CD at 3.05%, you only get 20 bps more than 3-year, or 10 bps/year, so not good enough. Ten-year at 3.45% only gives you 40 bps more for 5 years, so only 8 bps/year. Not good enough at all.

Backing up a bit, at 22% federal marginal tax rate and no state tax, taxable-equivalent yield of VG muni money market is 1.94% (1.51% / (1 - 22%) ), so you might want to use that as your 0-year basis for comparison. In this case, the 1-year CD or Treasury at about 2.2% still makes the cut, and the 2-year at 2.65% still looks quite good.

Your money market could be the first thing you tap for value averaging into stocks, especially if stocks tank a lot quickly. Then your Treasuries or CDs provide more to add as they mature, and you can set their maturities to coincide with your value averaging schedule. You'd want to have enough maturing each year to hit your value average growth target if stocks dropped 50% in a year, so much more than you'd need in a typical down year for stocks. Then you just roll over whatever you don't use for stocks into whatever CD or Treasury looks good based on the yield curves at the time.

I think that's enough for now. Hopefully it's useful.

Kevin
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ThaiSmile
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Re: Need Help to FIRE in Thailand

Post by ThaiSmile » Fri Apr 20, 2018 7:07 am

Hyperborea wrote:
Thu Apr 19, 2018 1:09 pm
It doesn't appear to irrevocable. You can elect to file as married filing separately. https://www.irs.gov/individuals/interna ... ien-spouse
Thanks @hyperborea and @hongkonger. Thanks for the views. I hadn't thought that I had any flexibility in this area, so will look into how this can be utilized to help with 2018+ tax. Will do some research to see how this might be set up and improve my position. Every bit helps! Many thanks for the points!

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Re: Need Help to FIRE in Thailand

Post by ThaiSmile » Fri Apr 20, 2018 7:34 am

HomerJ wrote:
Thu Apr 19, 2018 12:06 pm
ThaiSmile wrote:
Mon Apr 16, 2018 11:49 am
Agree I need to get into equities. Clearly I need to have some position. Are there any suggestions on equities/bonds that can avoid federal income tax exposure? While I am still working, but biggest drain is Federal tax. Thanks for any advice.
The basic Vanguard Total Stock Market Index fund is very tax-efficient. You'll get 2% in dividends each year, and you'll pay 15% on those (so 0.3% drag on your portfolio), but that's it.
Thanks @HomerJ. I will definitely be putting a chunk into VTSAX. The design of the fund seems to minimize trades, generating tax efficiency. I was looking also at their VTCLX - Tax Managed Capital Appreciation and the Top 30 holdings were exactly the same (with some minor ordering differences), so I couldn't figure where the incremental tax efficiency would be generated as well as any justification for doubling the ER with additional volatility. The JLCollins posts put me squarely into VTSAX.

As long as I continue to be employed abroad, what has become the challenge is to minimize federal income tax as I am just over the limit of the Foreign Earned Income Exclusion, but I believe well below the new AMT thresholds. Since I don't have to worry about state taxes and would not benefit from state tax-free vehicles like Treasuries, I have been looking strongly at WHAXH (High Yield Tax Exempt) and VWITX (Intermediate-Term Tax-Exempt) bond funds which invest in munis and be exempt from federal tax. Any thoughts on this? Many thanks... 8-)

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Re: Need Help to FIRE in Thailand

Post by txranger » Fri Apr 20, 2018 8:20 am

U ll be treading water in muni funds now, with interest rates on the rise, their nav s gettin killed. Consider muni money market funds.
After a lot of thought, I think lifestrategy moderate growth is the best compromise even tho it’s less tax eff. Just can’t beat simplicity and diversification and auto rebalancing and for behavioral finance reasons. Rebalancing is harder than I thought when markets r volatile.

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Re: Need Help to FIRE in Thailand

Post by bloom2708 » Fri Apr 20, 2018 9:15 am

http://www.mrfreeat33.com/

Here is another blog for a US expat in Thailand.

He is a "dividend stock" investor, but he has some great stories about living in Thailand on a low budget.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

ThaiSmile
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Re: Need Help to FIRE in Thailand

Post by ThaiSmile » Fri Apr 20, 2018 12:02 pm

txranger wrote:
Fri Apr 20, 2018 8:20 am
U ll be treading water in muni funds now, with interest rates on the rise, their nav s gettin killed. Consider muni money market funds.
Hi @txranger. My full attention on this, as I am on the prowl for federal tax avoidance products. So I believe you are referring to VMSXX Muni MMF. Why would the MMF be better than the other muni funds? Wouldn't the same NAV issue come into play with rising interest rates? As I read they try to keep the NAV at 1, so the short-term nature is the driver I guess? So it would be better to keep to short-term munis and then go longer term once interest rates plateau? Many thanks... learning something new with every post!

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Re: Need Help to FIRE in Thailand

Post by ThaiSmile » Fri Apr 20, 2018 12:12 pm

bloom2708 wrote:
Fri Apr 20, 2018 9:15 am
http://www.mrfreeat33.com/

Here is another blog for a US expat in Thailand. He is a "dividend stock" investor, but he has some great stories about living in Thailand on a low budget
Fantastic @bloom2708! Gave it a quick scan and seems like an interesting/educational read. Might need to try his free 30 min financial coaching. What I am torn by is that the investing that one does in accumulation mode (e.g. maxing out IRAs, etc.) are not available to me. Being restricted to taxable account, while I am working minimization of federal tax is key. For retirement mode, going with dividend-driven investment makes more sense as tax base is much smaller. Will probably have a better clue about my immediate future next week as I will see my boss. If I am up for a redundancy, I will go one way. If I can expect to work for another few years, I will go another route. Many thanks for the sharing.

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Re: Need Help to FIRE in Thailand

Post by Hyperborea » Fri Apr 20, 2018 12:29 pm

I'm not 100% sure of the Thai tax situation but it was my understanding that gains kept outside of Thailand and not brought in during that tax year are not taxable in Thailand or something to that effect.* If you hold the investments then the US will tax you on that money anyways. However, if your wife, who is a Japanese citizen, holds the investments then they will be tax free. Japan, like most other countries in the world, doesn't tax based on citizenship. The trick for you to reduce your taxes might be to have your wife hold the investments and for you to file your US taxes as married filing separately.




* Yes, here it is from KPMG:
"Any capital gain or investment income from sources outside Thailand is not subject to taxation unless a resident taxpayer remitted the process into Thailand within the same calendar year it is received."
"Plans are worthless, but planning is everything." - Dwight D. Eisenhower

ThaiSmile
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Re: Need Help to FIRE in Thailand

Post by ThaiSmile » Fri Apr 20, 2018 12:39 pm

sfnerd wrote:
Thu Apr 19, 2018 11:29 am
Fellow US expat residing in Thailand (though a bit less than 2 years for me).

I would be more aggressive on the equities. You're going to be battling inflation, as another poster mentioned. The baht has moved like 10%+ against the dollar in the past year or so. While this will probably not go on forever, it does present a challenge once income stops. However, with your SGD pension plus 40-60% equities you will probably be fine.
Thanks for connecting @sfnerd! Good to hear from a fellow American making it in Thailand. May I ask if you are retired or employed? Agree that exchange rate volatility is a concern. For me the hedge is my SGD-denominated pension plus what will hopefully be a healthy mix of Thailand Bhat-denominated investment/retirement accounts. I have seen many an expat crushed by the lifestyle change when at the bhat has appreciated by 25% in the past 15 years. Clearly from many of the posts, I need to be more into equities. I am looking at the post from @Kevin which has a useful guide.
Additionally, as you know, you can probably half your rent by moving into an equivalent place one or two BTS stops away :D Thailand is great that way.
Yes, prepared to make a move. As long as I am working though, current digs will be perfect.
Regarding accounts, I have Fidelity, Schwab, and Vanguard (in addition to others). Honestly, Fidelity and Schwab are my preferred accounts, but Schwab wins by a mile for expats. Fidelity and Vanguard are known to freeze accounts of people living outside of the US (don't tell them you are living abroad, and use a US VPN to connect while using their sites), while Schwab embraces expats. Also, they refund international ATM fees, which is amazing.
Just got off the phone with my relative in US. Schwab sent a letter telling me that my account cannot be used for any activity pending my showing physical face (and identification) at a Schwab office in 30 days otherwise my account will be closed. Will give them a call and see if there are options, otherwise will have to wait until next visit to US to use them.
As long as you stay away from Nana Plaza it looks like you'll have a great and wealthy retirement :) Chok dee khrap!
More like the lights from Soi Cowboy that I can see from my balcony - beckoning the nearby moths to the flame. :twisted: Know enough not to get my head stuck in that honey pot. :P Khob khun mak khrap!
Last edited by ThaiSmile on Sat Apr 21, 2018 2:12 am, edited 1 time in total.

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Re: Need Help to FIRE in Thailand

Post by ThaiSmile » Fri Apr 20, 2018 12:46 pm

Hyperborea wrote:
Fri Apr 20, 2018 12:29 pm
The trick for you to reduce your taxes might be to have your wife hold the investments and for you to file your US taxes as married filing separately.
Thanks @hyperborea for your insight. I definitely will delve into this approach for potential to minimize 2018 exposure. Just going the Married - Filing Separately route could have immediate payback. :dollar Many thanks!

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Re: Need Help to FIRE in Thailand

Post by ThaiSmile » Sat Apr 21, 2018 4:12 am

Kevin M wrote:
Fri Apr 20, 2018 1:09 am
Disclaimer: I know nothing about non-US resident investing, so everything I say is as if you were a US citizen residing in the US. You asked me via PM for inputs, otherwise I probably would not have replied to your post. It's too complex for me.
@kevin m: Many thanks for the lengthy replies both in forum and PM. In hindsight, I realized the foreign aspects of my post are overly complex. I should have just written those items in "US terms"... for example the Singapore CPF should have been written as "425k in annuity that will pay COLA-adjusted 30k/year from 2032". No worries as those parts of my portfolio cannot be altered, but your insight on how to deal with my cash vis-a-vis CDs is what I really needed (and you delivered!).
I recommend you read some books by William Bernstein and Larry Swedroe. You need to understand that it's your ability, willingness and need to take risk that should determine your asset allocation. Here is a short blog post I wrote some years ago that summarizes this, but you need to read more to understand it better: http://www.kevinoninvesting.com/2010/04 ... rance.html.
VERY useful post. Looking at the 3 levers, I am looking at 30% equity if I will be retrenched in the shorter term (willingness and need low with a modest lifestyle planned until 60). If I have another 5 years of working life expectancy, I can comfortably go to 40-50% (high ability to cancel out short-term losses with further investment plus stable income).
One thing I learned about from Bill Bernstein is value averaging, which is similar to dollar cost averaging, but forces you to add even more when stocks fall in value, and you add less if they increase in value. It may not be rational from a historical statistical perspective, but it is useful if you are scared to put a bunch into stocks now, and it gives you time to learn about your willingness to take risk, and even increase it. I was using this approach when 2008 hit, and I was glad I did.

So instead of just saying you'll put $X into stocks each year, you set a growth target--it can be monthly, quarterly annually or whatever, with the goal of ending up at a certain allocation to stocks. If stocks increase enough to meet your growth target, you add nothing. If they're flat, you add your growth target. If they tank, you have to add a lot more. If you can't do that, then you've learned something about your willingness to take risk, and maybe your target stock allocation is too high. Do this over several years to increase the chance that you'll be doing it when a bear market hits, since this is what you need to really understand your willingness to take risk.
My bane will be overthinking. VTSAX (Total US Market) to 20% allocation by end 2018. 30% by end 2019. More if my situation is stable.
In the meantime you can use CDs, Treasuries, money markets, savings accounts, or whatever makes the most sense to you, with the goal of having enough to add to stocks as necessary, as well as to provide money you'll need if stocks have an extended period of poor performance.

There is no US federal 25% tax bracket now. So if you were in 25% last year, it's probably 22% this year. At that tax rate with no state tax, taxable fixed income probably is OK, as tax exempt securities probably are priced to be competitive with taxable fixed income at that tax rate. Be sure to understand your marginal tax rate though, as it may not be the same as your tax bracket. I will be in the 12% federal tax bracket, but my federal marginal tax rate will be 27%, due to pushing qualified dividends from 0% to 15% tax rate.

So if federal marginal tax rate is 22% with no state income tax, then CDs probably are fine in taxable for maturities of two years or longer. Out to one year maturity, you'll probably do as well or better with US Treasuries right now, so I would use Treasuries out to one-year maturity, due to better liquidity.
Difficult to explain my rates considering I pay foreign tax as well as US tax. To make a long story short for my US tax, since I don't pay state taxes and considering my current income, my challenge is to minimize/defer federal tax. Under the new rules, I should be well within the trigger thresholds for AMT, so things like muni-based products, iBonds, etc. seem attractive while I am still working.
As I said in PM, I would not go beyond 3-year maturity with CDs now, because yield curve flattens out too much beyond that, and you don't get enough extra yield to justify the extra term risk. Larry Swedroe's guideline is to extend maturity only if you can get at least 20 basis points (bps) of extra yield per extra year of maturity.

With new-issue 1-year CD at 2.20%, you get about 40 bps of extra yield relative to Prime money market at 1.78%, so quite good. You might get a bit more with 1-year Treasury, so even better. With 2-year new issue CD at 2.65%, you get 45 bps for extending from 1-year to 2-year, so quite good. Two-year Treasury is about 2.45%, so CD is 20 bps higher. With 3-year new issue at 2.85%, you get 20 bps, so just barely enough. Three-year Treasury is about 2.6%, so CD is about 25 bps more. With 5-year CD at 3.05%, you only get 20 bps more than 3-year, or 10 bps/year, so not good enough. Ten-year at 3.45% only gives you 40 bps more for 5 years, so only 8 bps/year. Not good enough at all.

Backing up a bit, at 22% federal marginal tax rate and no state tax, taxable-equivalent yield of VG muni money market is 1.94% (1.51% / (1 - 22%) ), so you might want to use that as your 0-year basis for comparison. In this case, the 1-year CD or Treasury at about 2.2% still makes the cut, and the 2-year at 2.65% still looks quite good.

Your money market could be the first thing you tap for value averaging into stocks, especially if stocks tank a lot quickly. Then your Treasuries or CDs provide more to add as they mature, and you can set their maturities to coincide with your value averaging schedule. You'd want to have enough maturing each year to hit your value average growth target if stocks dropped 50% in a year, so much more than you'd need in a typical down year for stocks. Then you just roll over whatever you don't use for stocks into whatever CD or Treasury looks good based on the yield curves at the time.

I think that's enough for now. Hopefully it's useful.
This is SPOT ON the advice that I was looking for. My key takeaways:
#1: The VG Muni Market Fund is optimal for my 0-year basis as I will get nearly 1.99% considering 24% federal marginal and no state tax.
#2: 3-year CD ladder is the maximum considering the current yield - 2.0/2.65/2.85 does the trick.
#3: Although not part of your advice, I will get into iBonds as it aids to defer tax on interest.
#4: I will start the value averaging with VTSAX (Total US Stock). With either scenario, I want to be at 30% equities portfolio by end 2019 and VTSAX appears to be relatively tax efficient and straightforward.

The above points are solidifying my core approach for what I feel comfortable to do. The only wild card was that I had been looking at muni-based products such as WHAXH (Vanguard High Yield Tax Exempt) and VWITX (Vanguard Intermediate-Term Tax-Exempt) bond funds which invest in munis and be exempt from federal tax. As per the post from @txranger, the rising interest rates are hurting NAVs on these funds. Any thoughts on this? Better to wait until the interest rate hikes plateau? Just want to say THANKS for the advice and help to a novice investor with a conservative outlook. I feel better about how to ease into the hot tub of investing. Cheers! :beer

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Kevin M
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Re: Need Help to FIRE in Thailand

Post by Kevin M » Sat Apr 21, 2018 12:24 pm

ThaiSmile wrote:
Sat Apr 21, 2018 4:12 am
#1: The VG Muni Market Fund is optimal for my 0-year basis as I will get nearly 1.99% considering 24% federal marginal and no state tax.
#2: 3-year CD ladder is the maximum considering the current yield - 2.0/2.65/2.85 does the trick.
You might do a bit better with 2-year to 3-year AA muni bonds, but it is much more complicated to effectively evaluate munis than CDs. I have been buying munis, and have a thread about that if you're interested, but I wouldn't recommend it unless you're willing to spend considerable time learning about it and building the ladder.
The above points are solidifying my core approach for what I feel comfortable to do. The only wild card was that I had been looking at muni-based products such as WHAXH (Vanguard High Yield Tax Exempt) and VWITX (Vanguard Intermediate-Term Tax-Exempt) bond funds which invest in munis and be exempt from federal tax. As per the post from @txranger, the rising interest rates are hurting NAVs on these funds. Any thoughts on this? Better to wait until the interest rate hikes plateau?
No one can predict future bond yields--no one. So how will you know when they have plateaued?

What we can do is look at the yield curve, and only extend maturity if the extra term risk is sufficiently rewarded. IMO, the intermediate-term muni funds extend maturity beyond the 3-year maturity that I think is about the cutoff now (although I continue to hold my existing CA muni bond fund positions--just not adding to them). So if you want to go with a fund, the short-term and perhaps limited-term muni funds are more in the ballpark of what I consider a reasonably steep yield curve. These certainly are better choices if your view is that intermediate-term muni yields will continue to rise (although I don't think we can predict that).
Just want to say THANKS for the advice and help to a novice investor with a conservative outlook. I feel better about how to ease into the hot tub of investing. Cheers! :beer
You're welcome! Glad you found the thoughts useful.

Kevin
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