How can my husband and I safely invest money made from the sale of our property to help us in retirement while we live in Mexico and travel?
My husband and I are retired and moving to Mexico where we will live on Social Security. After selling our property, we will have approximately $500,000 in cash. We have no debt. How can we safely put this money to work for us while we are retired in Mexico? We are 72 and 62 years old and hope to use earnings from investing for travel and prefer not to use the principal.
Congrats on your retirement! Having traveled significantly myself, including some in Mexico, I think you can probably live very confortably on Social Security there. However, keep in mind a few practical suggestions in addition to the investment pointers that Mark mentioned:
- Currency -- your income and investments will be in dollars while you're spending in pesos. Therefore, I suggest your long-term plan incorporate enough flexibility to prevent a surge in the peso from hurting your lifestyle. Therefore, I recommend building in a buffer each year between spending and income that protects again that.
- Income from Investments -- be careful about any investment portfolio whose primary goal is income. Investments should be selected on the basis of their projected total return vs risk profile, and not simply to maximize income. Many poor investments pay high dividend and interest rates, but in a recession may still result in a permanent loss of capital. A good financial planner can help you determine a safe withdrawal rate that is independent of the investment selection.
- Taxes -- remember that you'll still need to file a US tax return each year, so start looking for an accountant that understands expat tax rules. Some even help you file the FBAR report if you end up needing to hold assets in a foreign bank.
- Banking -- you'll also want to setup a relationship with a international bank that caters to frequent travellers. The right international bank can offer competitive exchange rates, international phone numbers for customer service, and some even rebate all ATM fees anywhere in the world!
- Investments -- in addition to Mark's suggestions, I would just add that you'll probably want to work with an advisor that understands investing for expats. Blue sky rules can make owning some traditional mutual funds difficult, but a well-versed advisor can help you navigate those waters and build the right portfolio for the long-term.
First and foremost congratulations on your retirement!
Safe is a dangerous word when it comes to investing because no matter what you do with the money there is always going to be some risk involved.
What I like to do with clients is start with the income needs that they have with their money. Once you have that you can take that number and divide it by your investable cash which in your case is 500k. This is a great place to start because it gives you an idea of what your annual required return will be in order to live and not reach into principal.
Once you have that number you can begin to devise an allocation that invests in a variety of assets in order to achieve that return in the least risky way possible.
In your situation it would probably make sense to have the money invested in exclusively income producing assets such as dividend stocks, bonds, and REITS. The benefit to this is that if you are fairly certain on the income coming in you can weather the ups and downs of the market by just using the income. I will caution that simply looking at current yield of investments to get to your goal comes with a lot of risk and you should take your time and do your homework or hire someone that is well versed in providing these types of services.
Best of Luck and enjoy retirement!
Congratulations on retiring in Mexico!
The weather and inexpensive living are definite advantages to move there. I hope you have checked that area several times throughout the year and discussed with your CPA prior to this move. As it stands, you have become expats who will have a little more complex tax return to file each year.
As for your investment, it’s definitely better to hold it in the U.S. It’s cheaper to trade, easy to report (1099-R), and simple to build a low-cost diversified portfolio. In order to have that goal—using investment income but not touch the principal-to supplement your retirement needs, it’s easier said than done. You need to have a talk with your financial planner to see all options. Besides a CD or a bond allows you to do that, there could be other choices. You need to understand each option’s pros and cons to make an educated decision. Having a trusted planner in the States could help you navigate the regulation/tax/market changes. Best!
Be conservative. Stay away from commission investment vehicles that will lock up your money for long periods of time. Use diversification. Find out if there are ways to be tax efficient. Keep open communication with an advisor as you would a medical doctor for any sudden needs. Have regular checkups and a long term strategy. Enjoy.
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