“Dear ISR, I have a question I think will be of real interest to many International Educators: I’m in my mid-30s and this is my 2nd teaching post. I’ve been overseas for 4 years. The 1st year I was busily paying off personal debts I’d accrued. Then, I started saving. I’ve saved a decent amount and was planning to use it to make a hefty house deposit on a property back home.
A couple friends who’ve taught overseas for many years own houses back home and are paying their mortgages. It seems like a good idea; but recently a new friend told me the problems they have with their homes and the associated costs. This has got me wondering, maybe investing in a property is not such a good idea?
Is the stock market a better option for me? I have a pension fund at home but with little in it for retirement – maybe I should be putting money into this? Another friend told me pension funds are not worth investing in at all and suggested a Roth IRA.
I’d love to know what international teachers are doing with their income. Many of us earn good salaries where the cost of living is far less than it is back home, enabling us to save, save, save! I’m very aware I need to prepare for my future on my own. Any advice would be well appreciated.”
ISR Discussion Boards 
I must say the same thing nearly happened to me with Friends Provident. That company SCI tried to sell me something that just seemed wrong to me and I went with my gut and now I am glad I did. SCI and Friends Provident are running quite the scam I would AVOID SCI and any of their so called brokers or financial advisors. They come across as sleazy and downright immoral! AVOID SCI AVOID SCI WHATEVER YOU DO!
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I put my money in Vanguard Target Date Retirement Funds. They are a simple combination of a total stock market index fund, total international market index and a bond fund index fund. Everything you need and they become less aggressive as you get closer to retirement. The expense rations are super low and it is easy to set up and do automatic investments. This strategy is basically what Hallam in Millionaire Teacher recommends.
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Hi, I’m curious how this has worked out, since it has been about 10 years now. I am planning to do the same, but would like to hear how it has worked out for people who have had experience? I read lately that their were some tax issues that arose from Vanguard target funds. Did this affect you? Are you still on track to meeting your retirement goals?
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I want to warn everyone and I mean everyone about Friends Provident International. They will rip you off and lie to you about your investment or so called investment. As anonymous writes on April 14 about never doing an annuity or such other insurance purchases this is exactly what Gavin Snook from FPI sold to me with a false promise and serious lies. I asked him for a retirement investment and he sold me an annuity with hefty penalties if withdrawn early, that he chose not to disclose at the time of purchase. I asked these kind of questions but never received a straight answer and I did not know enough about investing then to know better; he took advantage of my situation.
Because he is internationally selling these things he is a bit above the law and the only repercussion I have is to warn others not to deal with this company so that you do not make the same mistakes I made. They have no morals and nobody to oversee their practices.
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I had the same experience with Friends Provident. They are crooks and liars.
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Hello, Anonymous
I was thinking about making a plan with Friends Provident International, starting in couple months. That sounded to me really good deal, and i saw all the chanrges they pu and the bonus, it didnt sound bad at all.
I´ve just read an article in Andrew Hallan´s page about FPIL, and he was talking about how much this plan is so abusive to our pockets, it´s a big rob, and now with your comment, it makes me even scared to make a plan with them.
Why do you think it was such a terrible experience? Do you think it´s a bad plan?
Thank you for your tip!
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Someone else mentioned this but I just wanted to throw it out there again; I can very highly recommend “The Millionaire Teacher” by Andrew Hallam. He’s an international teacher himself and the book is written specifically with that audience in mind. Very easy to understand; he lays it all out and explains things clearly and simply and gives excellent advice.
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Is there anyone who can recommend a tax consultuant for Canada? I have a home in Ontario and would like to know how to file taxes my taxes, or if I need to declare my income?
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Gosh, am overwhelmed people, this is all so interesting and giving me loads to think about. Thank you so much. Someone mentioned about term deposits (high interest bank accounts that lock in your cash for 3month- 5 year terms) I have been doing this and will continue to do so until I figure out the best way to invest. Am intending to check out the porperty market when home in the summer just to get a feel for it.
What do people think about trading in currencies? A colleague of mine was telling me a while ago that he likes to trade in currencies. Seems like a lot of fiddly stuff to follow, what do you all think?
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Currency trading is not for the faint of heart! You really need to know what you are doing. The same is true with all sophisticated and complex investments.
Stick to investing in things that you understand. And if you feel like you don’t understand much, it is time to start learning.
Novices are best to begin with index funds, such as the Vanguard 500 Index fund (VFINX), as others have suggested here. It very low cost, ade while values will fluctuate with the stock market, it has the safety of being diversified into 500 leading companies. it creates a excellent foundation for an investment plan.
Once you begin investing this way, your knowledge will begin to increase exponentially. It is a truism that where the pocketbook goes, the heart and mind will follow. After you are more knowledegable you can consider adding other alternatives.
This is free advice, but before returning to teaching to move overseas, I spent 9 years as a vice president and licensed principal (securities law compiance enforcement officer) for a broker dealer, and was also vice president for an insurance brokerage, so I do have some background. Plus, I own rental property also.
And with all of that experience, I still keep 25% of my assets in the Vanguard 500 index fund.
BTW, never ever NEVER place any savings with an insurance company product, whether whole or universal life insurance, annuities, endowments, what have you. No matter how great the agent makes them sound, they are going to drain your money, either with fees on the way in, or restricted withdrawal options on the way out.
You can be certain that agents will never tell you about how you will either lose your interest or lose your principal, depending on which annuity withdrawal option you choose. But you will.
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Is vanguard open to Canadian citizens??
I’m in my late 20s and have secured my first property back home. They say property is a sun shine market, it’s true to an extent and if you’re willing to put in the effort in seeing your returns. Now I’m looking to diversify and see where else to invest. Vanguard sounds interesting. Is vanguard open to Canadian citizens?? Where else can I find some follow-up reading on this?
I see there’s a few suggestion for investing, love this topic already!
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You can buy the vanguard indexes or anything you want if you open up your own trading account with the right broker site- it doesn’t matter where you live. Email them before you sign up and read the reviews about the broker site. That also makes your life way simpler with wiring in and out because you don’t have to wait for a pokey middleman and you won’t lose money to that middleman. I actually get free transfers because my broker has banks in many countries and in country wiring is free.
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Thanks maclean. You have an Internaxx account, correct? I was interested and I looked it up, says its not open to Canadian residence. I will probably have to email them in that regards since I’m a Canadian residence.
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Nope, with interactive brokers. (sorry typed the wrong name before). They have the lowest fees and the best iOS apps for my needs and their software runs on a Mac. They do however require a minimum 10,000 to open an account. As a Canadian resident you have a zillion options. Qtrade is a popular one and some banks will let you trade through your account with them. I’m sure you know all the issues, but it is possible to declare non residency even if you own a house. I’ve heard many tales about how people think non residency works, but I’ve done it twice and a lot of the rumors out there aren’t true. Btw, another bonus with having your own account is that your money will no longer magically disappear to those imaginary banks between here and the other side of the ocean. I also get the exchange rate of the moment when I exchange and I can also leave the money and wait for the exchange rate to move in my favor if it happens to be low that month.
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Thanks again. I’m seriously considering about the investing in stocks for a more faster return compaire to buying some property. I’m quite new to this whole brokers/stocks scene, any info you think that will be a help to me will be appreciated.
Yea, I’m going to declare myself as a non-residence this year to avoid pay the taxes, but from my understanding I will still have to pay taxes if I have a property. I guess it’s more follow up reading for me.
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Really? A zillion? I’ve scoured the internet of finding just ONE discount brokerage that would take my money because I’m canadian. Most do not for some reason (including Vanguard). I’ve now resorted to putting it in a fixed deposit expat premier account at HSBC for now. It’s crappy interest but I have access to it if I need to make another investment
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I’m sorry to hear about your frustrations Bill. Sounds like you’ve had a similar experience to my own when I first started. I think perhaps you misunderstood my discussion with Anonymous. They have kept their Canadian residency status and they are paying Canadian taxes so when they get to the part on the brokerage application at qtrade.ca or on questtrade.com or on the app at any of the great Canadian banks where it asks if you are a Canadian resident, anonymous will be able to click yes, where as I would have to click no and be refused. I assume by your response that you have declared non-residency like myself so that you are restricted to fewer brokerages? As I already mentioned, interactive brokers has one of the lowest commission rates and you can buy VTI there, the fund that most people seem to be talking about from that million dollar teacher book though now is probably not the best time to pick up that fund as it’s at its high point. At IB, you can also trade in most of the stock exchanges around the world if that interests you. cheers!
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Thanks all who have contributed, some very interesting advice here.
Funnily enough, this next week I am going to a financial seminar here in the middle east for Aussie expatriates, to hear about superannuation funds (pensions), saving off-shore, taxation implications etc etc…..
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I’m a little late to this thread but I agree with Bill, as a non-resident Canadian, you have very few options. I’m with Saxo and love it. I pay slightly higher fees but I get access to buying all ETF funds that I am looking for through both the NYSE and TSE.
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Invest in some stable dividend paying stocks. You can easily get a 3% from a proven stock. As you learn more, you can also invest in higher risk stocks with higher dividends between 5% and 15% to diversify. International brokers is a great broker with low commission rates and Internaxx is a broker backed by TD Bank though it has higher rates. It’s so easy to trade nowadays through an iPhone, iPad or a computer. There are also no penalties like with mutual finds if you need to take the money out and you’re not losing 1-3% to management fees.
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I have rented my home for 11 years back in southern California. I have evicted people, had my house stripped, had people claim ‘toxic mold’ to get out of the lease, had relatives screw things up until I got a rental company. It is a constant worry – however it has made me $ by and large – and although I missed the time to sell, I get a tax write off and the rent every year. Pencils out to 4-5% not including appreciation. My house however is in a desirable beach area – so it has been vacant maybe 3 months over 11 years.
Right now I am starting a time deposit CD in India paying 9%-10% per annum. The rupee is at an all time low, so there is also potential for currency earnings. Uncle Sam only requires reporting on deposits > 10k. I can take the $ out by electronic transfer or debit card worldwide when the cd matures. I have deemed their banking acceptable – but be careful – foreign countries do not have US banking principles that you are used to.
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Check out http://www.andrewhallam.com he is the author of a great finance book called, Millionaire Teacher.
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This is a real dilemma and there is much good advice in the posts above. Checking out with a financial advisor that you trust, property as option, Roth IRA etc. These are all things I have done.
I have found one good investment avenue which I have been involved with for the past couple of years along with some other teachers at my school.
I have invested 60,000 euro in a financial product in Germany which pays 12% return annually. It is pension approved in the UK, in SIngapore and in Germany itself. Basically you lend money for refurbishment and conversion into apartments of historically listed German urban buildings. You are then repaid the interest and principal under the terms of the loan. These apartments are then sold to German citizens who can, under current law, claim back the full cost of the apartments in lower tax payments over 10 years. The company that selects the buildings sells the apartments. The refurbishment is done by the company you lend to. You get a share of ownership of the builiding you invest in for the duration of the loan and this is in the form of a written contract valid under German law. The minimum investment amount accepted is 20,000 Euro. I have been receiving my return on this investment on time over the past two years.
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More info please! Sounds good
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Hello Thomas, I’m interested to learn more about this product in Germany. Can you provide me with more information?
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First, you need a fairly sizeable emergency fund of 6 to 10 K where you can get to it if you have an emergency. Then, look for a no-load fund like a Vanguard account and invest in it steadily each month for your retirement (choose a no-load account and read up on it ~ get Money for Dummies or Investing for Dummies so you have a real working knowledge. Property is a good investment after that…buy in a resort town or a college town..get a good rental agent, rent for whatever term you like. I live in a ski town and come home each summer and rent my home during the winter. Also, whenever you can buy a property with a small apartment attached, it is a real plus in paying property taxes. Treat it is a business, get rental insurance, and realize that things need to be replaced and repainted…keep your rental monies in a separate account to pay the bills, accrue interest, etc…expect to make a few mistakes in buying, renting, etc…this is part of the learning curve. Don’t get all emotional about rental stuff…it’s a business…treat it as such. I love real estate and I have made a few mistakes but I have really prospered with my real estate investments. I only wish I had opened a Vanguard at 30!
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Hi Karen. Where do you recommend keeping your emergency fund? Is there a better option that a standard savings account?
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One thing to keep in mind if you are american is the (Foreign Income) FBAR rules. If you are a US citizen all income earned overseas is taxable and must be reported. Even if you are paying taxes on it in another country. If the country you are in has a tax treaty with the US then you may not actually owe much if any but you still have to report it. Even if you don’t owe you can still be penalized if you don’t file and eventually return to the US. The gov’t has not been policing it very hard but has stepped up enforcement in the last 2 years. It includes all investments and savings in another country. Deadline is June 30 for the 2011 filing. I am told that if I attach a note saying you really had no idea that you had to report they won’t hit you with the late fees and penalties. This need to file even holds true if you hold dual citizenship.
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this is true – a friend returned to the States just recently and the processing officer at immigration said
“Well done Mr H. I see your tax returns are all up to date”
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1). U.S. Tax returns must be filed each year, AND
2). the FBAR form must be filed by June 30 if you had an aggregate total of $10,000 or more in foreign accounts at any time during the previous calendar year.
If this applies to you, be sure to file BOTH to avoid any problems.
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I think the immigration officer was joking. (a) Each branch of the government is separate and could care less what the other does-especially as immigrations is not paid to handle taxes and vice versa. Nor does immigration have the authority to even comment, let alone look into your tax situation. (b) If you are a mafia don or major drug lord or terrorist, then, yes the government may be interested in your taxes, because often income tax evasion is the only way they can get these characters. (c) I hope this never comes back to haunt me, but in 4 years of going back and forth, I only had one immigration officer even ask what I’d been doing overseas, and that was only so we could trade stories about the hardships of living in the Middle East. (d) I always come in through New York and with hundreds of passports to process in a short time, possibly no one had the time to do more than stamp my passport and wave me on.
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My story: I rented out my family home whilst working abroad. My house needed some minor maintenance as all 30 year old houses will. My property manager was fantastic and my house is in as good condition now as I left it 4 years ago. The property market in oz is flat but look at growth areas or buy housing rented to defence. Newcastle and the Hunter Valley have both. Good luck.
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Keep something else in mind if you work at an overseas school that does not tax your money (U.S.) or deduct for social security. I worked overseas for 8 years under such circumstances only to retire now and get a measely social security check because nothing was going in there for 8 years. So, best to invest in something for your golden years. I did and I’m fine with that additional money.
Also, while away, I bought a home and kept renewing the home warranty insurance that the sellers put on it and if anything-that is covered- breaks, it is fixed/replaced and I only pay a small service fee. After the first 3 months in the house, my water heater failed and my garage door went the next month as well. Both were fixed/replaced with little money on my part. I pay $39 a month and I am now waiting for my AC/heater to go. Its over 21 years old!
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I’m going to rent out my house and the property manager recommended warranty insurance. I figured it was just another rip off. It’s good to hear from someone that thinks it’s been worth it.
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I believe, by far, the best investments is a stock/bond index fund. Indexes have destroyed other investments in gains and require incredibly low fees. Houses are only a “good” investment if you compare it to renting. Mutual funds are some fo the biggest ripoffs in history (you can ask Warren Buffet or almost any nobel laureate in economics) as the fees are astronomical.
You can set up an Index fund with Vanguard – which is nonprofit.
There is tons of research to support this and if you want a quick easy read, with research and is current, read “Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned In School” by Andrew Halam.
He is an overseas educator that has over a million in investments before his 40th birthday. So I believe it makes him a pretty credible source.
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I totally agree and have read all the books plus about 5 others on passive investing. Talking to my colleagues, many are completely oblivious to the pitfalls of having your money actively managed. Teachers are throwing away hundreds of thousands of dollars to these greedy fingers (1%-2% of profit compounded over 20 years).
Stick with this and you’ll be fine.
I’ve started a passive portfolio and we will be retired by the age of 53 with a nice size nest egg.
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I have been overseas for three years and have rented my home all but three months. I managed it the first two years to friends, and this time around, I hired a management company. I am glad I decided to keep the home, and rent takes care of the mortgage,
management fees, and $50 a month that goes into a savings account for repairs/incidentals. It has truly been hassle free, and the rent is deposited into my account every month like clockwork. Rent will go up the next time around and I’ll be making a profit, which I will put away for a second property I plan to purchase in the next couple of years for my summer visits. Fortunately, my home is in a great community near a large university so location is key. Good luck!
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Hi. We are looking to invest in a property in a university town as well. Where is your house? Any tips? Thanks
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Actually it is a problem to know how to retain your hard earned money. And its definitely not cool to discuss “what am I going to do with all my money” in the staffroom. I have bought houses over the years – never with a mind to living in them; only to renting them and so if they do end up being not that well looked after by tenants, I am not emotionally attached to them and just pay to get them fixed up. I pay a friend to be my property manager – I pay $120 month and he knows he is getting that money no matter what. He does not get a cut out of the rent, and he has access to a local bank account, that he can arrange things without referring to me. It has worked well for 10 yrs.
At present, generally across the world, there is a sale on real estate – in other words, if the bottom falls out of anything else valuable and becomes cheap, its a sale – and it is in real estate too in my view. Why wait until the price goes up again? that doesnt make sense to me.
Make sure that you have approx, a years salary in accessible funds – bank deposit for instance, and then go for it. I have earned more in real estate over the years than I ever have from my teaching, but I enjoy travelling the world at someone else’s expense and I do a good job otherwise they wouldn’t keep hiring me would they? And running a real estate company doesnt appeal to me at all!
Flats in London, Sydney ….anywhere people are living and working where there is a good income stream. A financial advisor is also a very good idea. Make sure of their credentials first.
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As an American, your overseas income is added to whatever income you have in the US and this new total is used to determine your new tax bracket. This new tax rate is applied to your US income. So while your overseas income, up to $90K, is exempt, it still has an impact on your US taxes. And as an earlier poster said, if you have more than $10K in a bank account, or retirement fund, or whatever your current country calls it, you are supposed to file a form declaring this money with your US tax return (I have been told that the US is the only major country in the world that taxes the overseas income of its citizens in this manner.) I hope that you have been doing this, especially if you are planning on transferring back to the US any appreciable amount of money, as this will be a “red flag” that may get you noticed. If you do transfer more than $10K to a bank/credit union they are required to report this to the IRS. Good luck with your decisions!
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David is spot on with his facts. It is called the FBAR (Report of Foreign Bank and Financial Asset Accounts).
You need to file to report assets over USD $10,000 held in foreign banks or investments. The total is cumulative, so it doesn’t help to split it up to keep each account under $10,000. The deadline to file is in June 30 for the preceding calendar year.
Here is the link to the IRS finformation
http://www.irs.gov/businesses/small/article/0,,id=148849,00.html
“United States persons are required to file an FBAR if:
1. The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
2. The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.”
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I have purchased two houses with my overseas earnings! The first house, in Budapest, Hungary, several years ago….and I’ve had renters (not such a good idea when you’re living in another country…) but for the past 10 years or so, I don’t rent it out, but I always have a go-to place for vacations….and it’s in the heart of one of the most beautiful cities in the world. The second house was purchased when I retired last year….purchased with cash, so no mortgages on either one. The Budapest house was taxed when I purchased it and then that’s it for life on taxes…However, the ongoing so called community fees continue to grow as time goes by…higher than any kind tax….But the house I purchased out right in the United States has offered to me great financial benefits for the rest of my life. The modest amount of $$ from Social Security and teacher’s retirement (from 20 years of teaching in the US before I headed out for another 20 years overseas) is doable BECAUSE I was able to purchase a lovely home with enough money left over to combine with the SS and teacher retirement. I also had enough money to buy a new car outright….all with money earned overseas….so, I can say that because I taught in excellent earning places and saved along the way, life has turned out really well, financially. My last school (taught there 5 years) had a teacher’s investment plan that you could contribute up to 18% of your salary and the school contributed the same amount….and at the end of my time there, this fund (which I never missed the money contributed during those 5 years) was enough for a new house and new car and approximately $30,000 for the bank account. I know that none of this would be possible had I not taught overseas…..Good luck!
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Hi Pam,
What’s the current situation with taxes (incl. property taxes) in Budapest? I think it is a wonderful location and prices seem to be good now. However, as you said, rent is low. I appreciate your advice.
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I notice that not many of those leaving a note here are Canadian. If you are Canadian then you are subject to tax. You are especially not going to get away with not paying taxes if you own property. It is a huge “wake-up call” for Canadians and Revenue Canada makes it extremely clear on their web site. New, young teachers I work with are paying off student loans etc. but they have either declared themselves “non-residents” or they’ll get a nasty surprise. As someone who has been paying taxes for years, I am in the system and a year, or two with a non-payment would be a red flag. I will be declaring and it is 25%. It is a problem too to give your contract to your accountant because if you do, you’ll be taxed on your freebies such as housing. For me, that really cheeses me because the “free house” is really a lousy place with the most cheap furnishings that they could have found. BEWARE CANADIANS. For me personally, it has not been worthwhile at all.
Also, with Canada, as with the US, money transfers of over $10,000 are red flags in any banks and they are reported to the Revenue service.
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Non-resident Canadians do not need to pay taxes in Canada. Non-residency status depends on how long you stay out of Canada, plus your residential ties in Canada and your country of residence. The longer you stay, the more you are a non-resident. Non-residency also does not prevent you from owning property. I asked a Revenue Canada representative at the Queens’ Job fair two years ago. I wanted to be sure that I was alright not paying taxes and investing in my own country for my future retirement. He said I was fine on both counts: I’ve been living overseas for 10 years, haven’t filed since 2003, and could buy property at any time. As for large money transfers, for a non-resident, there’s no issue with bringing in over $10,000. Just don’t forget to declare it at Customs upon entry.
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I am Canadian and have been working in the States for 10 years. I am about to go to a tax free country to work and was wondering about when I return. My concern is that I re-instated my license and health card because I thought I was returning to Canada. I am hoping this does not hurt my non-resident status.
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It all depends on how long you’ll be away from Canada. I’d think a two-year contract is the minimum amount of time they MIGHT think you’re a non-resident, though it would depend on your residential ties in Canada. The health card is a big one. If your contract is for less than 2 years, then you would be considered a resident. If it’s a longer contract than that, I’d cancel your health card, but hold on to your driver’s license.
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Get a financial advisor that can give you individual attention and is someone well-recommended. It is best if you can find one who has worked with overseas teachers as they understand some of the needs and restrictions. As an overseas teacher, you cannot contribute to an IRA or 401K plans. You can invest in mutual funds (I did and that is a big part of my retirement income now) or put the money into long-term CDs for the greater interest rates. Look at buying property NOT as an investment—but as a place to live. I would say, save, save, save (money market, CDs and mutual funds) and eventually think about buying a house, not necessarily to rent, but to have available when you are home on vacation or when you move back home. Good luck.
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Generally I agree with the not buying a house as an investment, as so many people moved into places they thought were alwys going to be worth more, every day, when it was really all about justifying how much they wanted to live large.
But I have bought a place with the intention of it being a part of a retirement plan from the start. I lived in it for the years I went back to grad school to avoid paying rent and in effect losing years and money. I know the place pretty well (all of the things that can go wrong!) but being away, you have to have A HUGE amount of trust in your rental management agency. Mine also only charges 10% (Only! Seems a lot when usually they just collect and deposit checks, but when something goes wrong, they are 2 blocks down the street from the property and they earn the money then.)
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This will probably only apply to a very small percentage of int’l teachers, but thought I’d throw it out there anyway. After returning to the US from many years overseas, I found a loophole to purchase into my state teacher retirement after being told “not possible” for a number of years. I taught US Embassy kids. Embassy kids = State Department funding. (they keep a complete list of all int’l schools they help fund, and may have provided some funding whether you had an Embassy kid or not) Got a letter from the State Dept, and for every year back working in my state, I was able to buy a year of my overseas “service credit”. Not cheap–cost about $50 K, but those 9 years I bought will add $900 a month for the rest of my life to my pension. They may have since closed the loophole as the budget cuts continue, but worth looking into if you’re in that situation. Looking forward to hearing other ideas on here…
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Whatever the advice is about property, stock market, etc, be aware that you cannot put foreign earned income into a ROTH IRA. And the more time you spend overseas, the more you will realize that there are lots better places to buy property, or invest in markets, than in the US.
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Someone led me to believe the same thing regarding Roth IRA’s. It simply isn’t true. It is a great investment for people overseas. Do your homework. I wish I would have started my Roth 10 years ago when I first began overseas.
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ooops it is true. you just saved me. luckily i opened it this year i can yank it before my deadline.
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Yes you can put it in other retirement type accounts but not in a Roth unless you had some type of US based earnings.
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You can put your foreign money into a U.S. based brokerage account and then have that brokerage account pay your ROTH. This will work just fine. However my brokerage account was well established before leaving the country & I have my parents US address as my address on the account.
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Correct, in an odd way, but completely foolish..
You can put your money into a Roth IRA, however, you must also have income earned in the U.S. equivalent to the amount you put in each year.
Otherwise, you are subect to a 50% penalty an any amount over your U.S. domestic earned income. So far all practical purposes, you cannot put foriegn earned income into the Roth.
You may wish to check that detail out, S., because if Uncle Sam finds out, you will be facing a huge penalty someday.
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I recently just found out about this as well. I had been contributing to a Roth for 6 years while working overseas. I was not contributing much since I was in Spain and not earning much, but I did incurr penalties for taking the money out and putting it into an individual account. Fortunately I found this out now, but not until I started working with a financial planner/accountant who is experienced with US citizens working overseas. I received a lot of wrong advice, especially about the Roth, from accountants in the states who don’t deal with clients in my situation.
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Tom, I did some more looking into how I’m funding my Roth IRA while abroad. I knew what I was doing was legal but obviously I didn’t remember exactly how it was being done. I had significant savings built up in a brokerage account prior to leaving the U.S. Each year I’m contributing to my Roth from the savings previously earned in the U.S. The money going into my savings account from foreign funds is not paying the Roth. You don’t have to have money earned in the U.S. that year. It just has to be paid with money that WAS earned in the U.S. Once I max out the amount I had in savings (which is being replaced in savings as I save each month) prior to leaving the U.S. I have to stop contributing to the Roth and use another retirement saving method. But I’ll be able to contribute to the Roth for quite a while.
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Comes down to doing the sums re out goings and ingoings, I have made over 6 milliom dollars Australia by investing is real estate so my reality and FACTS are what I am basing by comments on and not second hand comments. I have recently retired and Never need to work again. Not luck… good planning
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Rent is not always a stable source of income and you will need to have a large sum available to cover costs. Renters are often not reliable. Houses need constant repair. Anyone who has owned a home knows this. If you take the property route, make sure you use a good property management company. They screen renters, check property maintenance, kick people out, find new renters etc etc. They cost a bit, but save a lot.
I too struggle with what to do with money saved. Best advice I heard is find a wide range of ways to invest. What I am learning is that this takes time.
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I would also caution about buying then renting it out. I rented my wonderful house to people I thought were the perfect couple for my house. They actually wanted to buy it which I was willing to do at the time but they had to rent to get some bills paid off first. First red flag!! I explained everything that was wrong with the house since they were interested in buying. Things started “breaking” 2 weeks after I left, expensive things. They were contractors so they were fixing some things because “it was going to be their’s anyway”. Never got a bill or request for repayment but I did take off on the rent for some of what they were doing. When it became obvious they were not going to qualify for a loan, they sent me a bill for $37/hr for their “work”. They refused to pay rent so I got a lawyer and kicked them out. Big mistakes made on my part. Now, my ex-husband rents it. Perfect solution. My son can still go home from college and I still have my wonderful house plus someone I (sort of) trust to feed my cats!
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Thanks everyone for your thoughts so far…
re: 2nd time around: your rental issue was what I was thinking about as a couple friends have had to shell out loads of recent for new hot water sytems, new kitchens etc….. this is what led me to write the above post.
I won’t be investing in my home country yet as the prices housing in Australia are astronomical, but due to come down.
Any other advice welcome!
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Kyvianmarsupial, the price of property isn’t going to go down. That said, it’s the cost of the mortgage borrowings that should make up your mind. RE: 2nd Time Round, I don’t know why on earth you’d consider letting people stay in an apartment for free, if it’s an investment property. The point is: you want to make $$ out of it.
If you buy in an area where the rent covers the mortgage and additonal extras the landlord has to pay (body corp fees etc), then to my mind it’s a sound investment. Stoves are going to blow up – that’s why you have landlord insurance. Real estate agents are essential if you are out of the country. Mine is fine: the current Australian market is making them hungry, so the bad ones technically should be going to the wall. They are also charging nowhere nere 10%, about 6% is the going rate at the mo.
The longer you dither, the less you are using your investments. At least keep savings in a term deposit (rather than a no-interest bank account) while you make up your mind.
BigSista
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“the price of property isn’t going to go down.”
That’s what we used to think in the States. That’s what they used to think in Japan. Famous last wrods.
That being said, if one wishes to invest in property, or stocks, look for someplace where the prices have already gone down and invest there. Buy low, not high.
As Warren Buffett says, the best time to invest is when there is blood in the streets from everyone else’s losses.
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What you decide to do with your savings is a very personal decision and depends on your tolerance for risk. You say you have a pension fund, but most pension funds are tied to employment (401K, etc.) or I would have put money into my NY State pension fund, as no private fund would ever pay as much interest as I got from them.
One story I can’t resist telling…While working in Iraq, I just wired money into a low yield savings account, not being able to find anything else that paid higher. One day I received an urgent but vague email from that bank saying to call them immediately-no explanation given. Panicked at the thought that my account may have been hacked, or I was in trouble with the government (US) I tried to call them via Skype. Due to weather conditions it didn’t work. I then ran around trying to find a location that would give me good reception on an expensive international cell phone call, only to find out that some overzealous bank official seeing all that money sitting there was trolling for investment business!!!
When I came home for the summer I went to see her and she tried mightily to get me to invest in some very bad annuity and market funds. As I’m no longer working overseas it’s a moot point, but I did find a high yield CD from an online bank and put what I could into that. Only wish I could have put more into it.
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I’m not so sure about the property idea. We let people live in our house for free when we went overseas. The only stipulation was that they pay the utilities, mow the lawn and care for the garden.
The first guy lived there one year. He never mowed the lawn nor cleaned the place. Next we had a couple in there for 2 years. They also didn’t mow the lawn and kept the place like a stye. We gave them the boot. The last guy was the worst and we kicked him out and put our son in there. He also was not so good.
Maybe if people are paying to live someplace they will take better care of it. I don’t think so. We also have a couple of rentals and they are just as much of a problem. What do you do when the hot water heater goes out, the toiled stops up, or the AC stops working? You are at the complete mercy of the repair people where as if you are there you can make minor repairs yourself and keep an eye on the place. I worked with a guy who turned his house over to a property management firm. Every time something broke, which was frequently (too frequently if get my point) the management company repaired it at a high cost. He knew he was getting screwed but what could he do about it from Africa.
Think of it this way…you invest a couple hundred K in a house and then let someone live there for just $600 or so dollars a month and entrust them with your investment. You’ve got hundreds of thousand invested and they pay peanuts and not only enjoy it but put plenty of wear and tear on it.
It all sounds good in theory but in reality your tenants will not care for the place like you do and you’re ten thousand miles away. I don’t recommend it.
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I have an excellent property management company that only charges 10% of the rent. They manage everything, even if it is a bit slower than I would if I were there. But they are competent and it takes care of things while I am away. One house is paid for and one will be paid off within a year. The houses are in Colorado and I will gladly share the name of the company for those who wish it.
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The above entry is pessimistic, but sound. While I was very lucky with my rental I was always nervous when things broke for the reasons stated above. Liquidity is key and while the markets are volatile they remain liquid and the best place to park your money if you are not going to need it for five years or greater.
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I have had my ‘home’ rented out for the last five years and have had not one ounce of trouble with the rental firm handling the management of it. Whenever there is a problem they contact me and it is taken care of within 24 hours… mostly. All expenses are a tax deduction…. rates, taxes, water, management costs, repairs, bank interest… BUT this differs depending on the country, obviously. My advice is to ask around re reliable agents and list strict rules you want in regard to the tenant, i.e. no pets, gardening etc….. and state those in the contract. If those rules are not adhered to, bump the rent up, or the tenant pays for the repairs, etc
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Totally agree. No longer is property the “smart investment” it was in the 80s and 90s. I don’t think it ever was. Personally, I invest in a passive portfolio of broad based stock indices and gov’t bonds that provides me with an average rate of return of 7% per year. Compounded over 20 years, I will have a nice size nest egg for retirement.
I see all my coworkers with their money tied up in expensive mortgages, home repairs and the hassle of trying to rent it out while they are not there. All the time, with no money put away for retirement.
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Hi People,
I was the one who originally wrote the question piece above, early last year. My intentions are the same now as they were then – not quite sure what to do with the savings I am building up – property or stocks and bonds etc etc.
I saw there were new posts here so thought I’d update you all.
I am pleased to see that this thread has generated so much discussion, and hopefully help guide a few of us along the way.
Since then, I’ve had a few interesting things happen.
I mentioned in an earlier post that I was due to see a financial planner. I saw this person and went through an exhaustive interview process mapping out my financial life. No, not as simple as ‘I have a few dollars in the bank, and I earn X amount’ to my surprise. This person tried to get me to sign up to a plan that meant putting in a certain amount into a fund based in Italy (similar to ‘Friends Provident’ mentioned above I think) and taking out life insurance. Thankfully I had the sense to hold-off, and I asked my partner to read through the details and give me his opinion. Mr Kyivanmarsupial writes for a financial weekly magazine based in London and is very knowledgeable about all this type of thing. I planned it that he had enough time to investigate then come and visit me here in the Middle East, and meet with this financial planner. His bottom line was: DON’T SIGN!!! He went to town on this financial planner and suggested that I continue to hold money in term deposits, and then once I return to London we’d begin a conservative long-term investment strategy for me.
I went home last summer (August 2012) and had a look at property prices and spoke to my home bank there. They suggested I’d need far more cash than I anticipated for a deposit and suggested I continue to save for the moment. They also suggested that as I am no longer in Australia and non-resident then this changes my circumstances somewhat. Also prices in property in Australia are still astronomically high, although they have flattened somewhat in the last year.
So that’s where I am at: continuing to save into term deposits with the idea of investing at some point in the next year or two; property idea on hold for the moment.
If anyone here is in the Middle East and being persuaded to invest with a wealth management company then I would suggest you check it all out very very carefully. I won’t name the people I spoke to, but I am glad I had the sense to discuss this with my far savvier partner.
Good luck!
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I think holding onto your money for now, considering the world economy, is your best option. While real estate is way down in most parts of the western world, there is still a question about whether you want to tie your money up into something that could incredibly hard to liquidate should an emergency arise. As well, if the US is shifting from its position as a country of influence to a country with less influence, the real estate market could take a very long time to stabilize.
Finally, I’m not sure if everyone is aware of this but the US is now requiring other countries to let them know when US citizens have more than the equivalent of $10,000US in their foreign accounts. Big Brother is watching you wherever you go these days.
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Susan, you are so RIGHT on! Watch the video THRIVE ! You can find it at http://www.thrivemovement.com
After you watch that, you will have some ideas where to put your money and you will stay out of the U.S. banking and real estate system, if you know what’s good for you.
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Absolutely agree with Dorothy in purchasing property. Just ensure that:
A. You have enough money in the country where your property is to continue payments for a few months should the person renting your property simply disappear when you are away on the other side of the globe.
B. You invest in a country that is relatively stable
C. That you would actually want to live in that home and in that neighborhood. (After all, you may have to some day.)
I disagree with using the equity to then purchase a second property as I see this as an undue risk of a sound investment.
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I believe that buying property is the best way to go as not only can you pay down the morgage using the money you save while overseas but you also can have the rental income to pay the property off. Then use the equity to buy another one. I know many teachers who have done this and are happy with their investment in property. remember any costs can be claimed against the tax liability for the rent you get back home.
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Great advice, exactly what we do. But what do you mean about costs claimed against tax liability for rent? Please explain. Thanks, Paul.
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