Should you cash out your retirement accounts before moving overseas?
Before I moved overseas, I closed my retirement accounts, paid the taxes and penalties, and put it all in cash.
Now, that doesn’t mean you need to do the same thing. However, here are the reasons why I did that, in case you’re trying to decide what to do with the money in your retirement accounts.
Risk of inflation
With the amount of debt the US government has, and will add in the future, it’s almost certain that there will be inflation. Some people believe there will even be hyper-inflation. Either way, you can expect the dollar to be worth less once you are retirement age. The same problem exists for the Euro and some other countries’ currencies.
In my 401k account, there weren’t many options for me to invest. The average 401k plan has 17 different funds you can invest in. That doesn’t give you much of an opportunity to diversify your money. And good luck finding a plan that lets you invest in gold or silver.
Having a million dollars (or Euros) in your retirement account may have been your old goal. But once you reach retirement age, you may find that million doesn’t buy you very much.
Population trends
The Baby Boomers are starting to retire.
Because of this, there will be less people buying stocks through their retirement plans, and there will be more people selling them, to get money for their living expenses.
I’ve seen some studies say they don’t expect that to have an impact on the stock market. However, the Federal Reserve Bank of San Francisco has a very interesting article on how the ratio of middle-aged people to retired people almost exactly matches the average P/E (Price/Earnings) ratio of the stock market.
Now, I don’t exactly hold the Federal Reserve in very high esteem. However, this report is based on historical data that you could easily verify yourself.
You can find out more about how population changes can drive the economy in these books: Elliot Wave Principle, Conquer the Crash, and The Great Crash Ahead. *
Risk of government control
There is a lot of concern that, as the government needs more money, they’ll start looking at all the money in retirement accounts. They’ll probably pass a law saying that a certain percentage of retirement money needs to be held in “safe” investments. In this case, they’ll consider government bonds (you loaning your money to them) to be “safe”.
This has already started to happen in some places like France and Hungary. The US government already borrowed against federal pension money May of 2011. What will they do if things get worse?
Since I believe the economy will get worse, before it gets better, I consider this a serious risk to my money.
Belief that I can do better growing it elsewhere
This was a big reason why I cashed out my retirement accounts. After seeing them not grow for years, and expecting the economy to be worse for the next decade or three, I don’t believe the stock market is the place to keep my money.
I’d rather use it to build up my own companies – something I can have control over. When you think about investing in stocks, it’s not too much different from placing a bet in a casino. Sure, you can do more research and make more choices. However, you ultimately put your money down and hope that the company you invest in is managed well. You believe it will deal with whatever problems arise in the market or economy.
Based on the companies I’ve worked for, I don’t have a huge amount of confidence in the management of most companies. I trust myself much more than I trust them.
Plus, I’ve got business ideas and energy. Now is the time for me to act. The money from my retirement accounts was the seed I needed to build a (hopefully) great future.
Now, if you’re ready to retire, starting a new business may not be what you’d want to do with your money. But if you used it to buy a house with a good-sized garden overseas, you may be able to use it to eliminate your rent/mortgage and cut down on what you spend for food. That can greatly reduce your need for a source of retirement income.
If you can use your retirement money to become self-sufficient, then you can retire at any time – without worrying about how the economy or stock market will do in the future.
I expect that some of the tax benefits of retirement accounts will disappear
If the last few years have shown us anything, it’s that the government considers the average person a resource to be used for whatever they want.
If they want to bail out the big banks, the middle class can pay for it. If they want health care for everyone, the middle class ultimately pays for it (through higher prices charged by companies that now need to provide healthcare). If they want to have multiple wars running at the same time, they’ll keep writing checks that we need to pay. If they want to run huge budget deficits, our children can pay it off for them.
The attitude of the government is a big part of why I moved overseas. I don’t want to be someone else’s “resource”. I want to enjoy the results of my work, and I’m willing to accept the risks of being responsible for myself.
So, what do I think is going to happen once you retire?
I expect to see the tax policies change for retirement income.
It will probably start with something like a nominal ten or fifteen percent tax on people who get more than $100,000 a year from their retirement accounts. And, of course, they won’t receive Social Security, because, “They don’t need it.” Never mind that they were forced to “contribute” to it for decades.
Then, as inflation continues, we’ll find that more of us reach the limit where the new taxes and policies apply to us. And I wouldn’t be surprised to see that “small” tax rate become larger, as the government needs more money.
Should you cash out your retirement accounts when moving overseas?
This is a big decision that only you can make for yourself.
But it ultimately gets down to you deciding which has lower risk of loss, and a higher chance of gains.
Just like moving to a new country, you should look at all the information you can find, and decide what you believe is best for you. And be sure to come up with some backup plans, in case your choice doesn’t work out as planned. Always have a backup plan.
* Disclaimer: If you purchase these books from these Amazon links, I get a small commission.
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Interesting article, and congratulations on your decision to leave the United States for a higher quality of life. Unfortunately, you failed to mention the most importants reason for cashing out and leaving. These include the erosion of liberties and the movement toward a police state; and the ultimate consequence that an armed population (thanks to the NRA) will eventually rise up against the government in a second civil war. It will not be a pretty picture, but of course, it is not a glamorous situation right now, thanks the the brownshirts in the previous administration. I’d steer clear of South America as a final destination, however, for many reasons. Thanks for sharing your points of view. Sarah
The ongoing loss of rights (both personal and property) was certainly part of why I left. However, it isn’t just from the previous administration. We can go back much farther in history. From Lincoln suspending the writ of habeas corpus, to FDR confiscating privately-owned gold (and later devaluing the dollar), all the way up to the current administration deciding they have the right to execute a US citizen on foreign soil without a trial, and the recently passed NDAA indefinite detention law.
Based on what I’ve seen in history, things tend to move like a pendulum. Freedom reaches a point where some people abuse it. Then, the citizens demand order. They willingly give up their rights, in the hopes they can achieve this order and safety. After a while, the abuses of a highly-controlled society eventually cause the people to demand more freedom. I believe the US is still moving in the direction of “more control”. There are signs of cracking, such as the Tea Party and Occupy Wall Street. However, I expect it will be years, if not decades, until the trend reverses back towards more freedom.
In many countries in South America, I believe they’ve already reached their limit of “more control” and are moving towards “more freedom”. They’ve gotten rid of their dictators and have replaced them with more representative governments. Their economies are lessed controlled, and there is less government interference in their daily lives. In addition, there are still people alive who remember the bad times, and don’t want to repeat them. So I expect things to generally continue getting better in places like Paraguay and Chile.