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Maybe it’s our travelling instincts longing to get back out onto the open road, but lately we’ve been picking a lot of travel-related reader cases. Today’s is another doozy. This time, our reader wants to know if after a lifetime of hard work and diligent saving, can they afford to pack up all their stuff and retire to…Portugal?
Hi Kristy and Bryce,
Thank you so much for taking the time to read the below information and considering us for one of your case studies! Kristy’s story was instrumental in my belief that the FIRE movement is accessible to anyone, if you just work hard enough and stay determined/disciplined. I was the first person in my family to attend/graduate college and grew up never going out to restaurants, eating whatever was produced on our family farm, and only buying things if they were a necessity…and we had a coupon 🙂 Thank you both for all that you do to inspire and motivate us all toward FIRE.
Note: We have accumulated the below portfolio solely through hard work and frugality. No inheritances or windfalls of any kind.
Your gross/net annual family income
- Adjusted gross income for 2020: $322,779. So far, 2021 is on track to be similar.
· Your monthly family spending
- $1,000 monthly cash envelope system for groceries, eating out, pet expenses (food and vet), and gas.
- Approximately 2K monthly in rent and utilities.
- Average of 3K on our credit card each month, which includes additional groceries, gas, eating out (when we forget to bring cash!), activities, clothes, travel, cell phones, internet, etc. (we pay off in full each month)
· For any debts you have, please include: N/A
· Any fixed assets you have (house, car, etc.)
Two paid off vehicles worth approximately 45K combined.
· And investments or savings you have (cash, bonds, stocks, etc.)
- We took your house ownership blogs (and we’ve read your book 2x’s each) to heart and have sworn off home ownership after owning between the two of us over 20 properties over the past 20 years (multiple personal residences and a lot of rentals).
- Retirement funds:
- Deferred Comp: 50K
- 403(b): 27K
- SEP IRA (VDIGX): 85K
- Roth IRA (VBTLX): 48K
- Roth IRA (VTABX): 10K
- Roth IRA (VTSAX): 140K
- Roth IRA (VTSAX): 10K
- Vanguard money market settlement fund: 4K
- Solo 401K (VTIAX): 20K
- Solo 401K (VTSAX): 66K
- Solo 401K Roth (VTIAX): 42K
- Solo 401K Roth (VTSAX): 81K
- PERS Individual Account Program (“IAP”): 65K
- PERS OPSRP: apx $500/month for life in retirement.
- HSA: 10K
- Cash: 40K
- Business checking: 15K
- Business savings: 20K
- Personal checking: 12K
- Personal savings accounts: 48K
- VTSAX: 1.2M
- Fidelity Total Market Fund (FZROX): 53K
- Apple stock: 4K
We have been following your blog and the FIRE movement for years with hopes of making the huge leap to early retirement in approximately a year. We live in the US and had planned on becoming Portuguese residents through the D7 Visa process; however, the more we research and prepare for that endeavor, the more worried and concerned we become. As two high achieving professionals, we are experiencing a lot of anxiety as we are getting closer to this actually becoming a reality. With that being said, we have spent a lot of time thinking through goals and passions that we can pursue after we reach FI (but we are still super concerned that we will have regrets/are making a big mistake!!). Our timeline right now consists of giving notice at both of our jobs in June of 2022, winding down those positions that summer (one of us is self-employed so there will be a lot of extra steps in shutting down a business), selling everything we own (including our cars) that won’t fit in our carry on and checked luggage, getting our sweet dog’s required travel vet records, etc. figured out, traveling to see family for the month of September, going to the Portuguese Consulate in San Francisco for our D7 visa appointment in October, traveling in the US and spending more time with family between October – January, flying to Portugal on January 1, 2023 (we already have a 6 month lease in place!!…getting this lease was another major freak out moment in wondering what have we gotten ourselves into…is this actually becoming a reality?!), getting our residency in Portugal, finding a more permanent housing situation prior to our 6 month lease being up, and figuring out everything else that comes with moving to a new country.
Our question surrounds whether we can retire early at all and if so, whether making this move to Portugal is actually in our best interests or if we are better off to stay in the states. It seems like everyone is talking about Portugal these days but I’m starting to wonder if it really make sense for the FIRE community as a retirement destination. I provided our current budget in the US and would expect that budget to stay similar post FIRE if we remained in our current location. Another option would be to move to a lower cost of living area within in the US or live in an RV for a period of time (I don’t know if that is a realistic option because our marriage might not survive such close quarters and non-stop driving together!). We expect our budget in Portugal to be closer to 3K a month (our current 6 mo lease is for 760 euros/month and from what we have researched, our health insurance premiums and food expenses will be significantly less than in the US).
If we moved to Portugal, our plan was to live off of our cash cushion (minimum of 100K by the time of our move) and investment income (projected to be at least 1.3M in our non-retirement accounts by the time of our move). My research shows that Vanguard does not allow its investors to reside outside of the US. In further researching this, I have found that some people have stated they have a virtual physical address mailbox service as their address with Vanguard and use a VPN when logging on and have had no problems. I originally thought that I would keep everything as is and use the virtual mailbox/VPN approach, thinking the worst thing that would happen is they contact me to say they will no longer hold our funds. However, I have heard from some people that what can actually happen is that Vanguard simply closes their accounts and mails them a check. This would obviously result in a huge amount of penalties and tax, especially in our retirement accounts (we are in our early 40’s). So, I am terrified of just “hoping everything will work out”… and then getting completely screwed over.
Other people have said that they switched to having their investments held at Schwab, which allows this scenario. If we went with this approach though, we would need to do an in-kind transfer to the same funds but Schwab doesn’t have the Vanguard Admiral Shares option, so overall our fees would go up. We do have a Schwab checking account, which I opened to save on foreign ATM fees in the future (and because I thought it would also be easy to transfer money from our investment accounts if we moved to Schwab to our checking account). But, my research has shown that while Schwab One International is an acceptable place for us to continue to hold our US investments, Schwab may no longer allow us to keep our checking account if we live overseas. Again, it appears that people have been doing this with the US mailing address/VPN, but it is frustrating that it doesn’t appear to be a sure thing.
In researching Portugal’s Non-Habitual Resident Tax Regime “NHR” in more detail, it appears that dividend income is not taxed but capital gains from investments are taxed at 28%. We then considered adapting your Yield Shield approach or just moving our VTSAX into SCHD to increase the dividend yield. I’m not sure how to calculate the 28% savings from dividends versus the growth we would likely lose out on from not being in VTSAX over time, so I don’t know if that makes sense. Then I realized that this would not be an in-kind transfer so we’d have to pay taxes on the capital gains (about 300K at this point). So, I thought for sure we did not want to do this. BUT…then after more research, I found out that Portugal does not step up the basis at the time of sale, once we are Portuguese residents. So, we will be paying 28% on the total amount taken out versus the true gain realized. So, now, I am really at a loss as to what we should be doing in preparation for our move.
My thoughts are worst case, we transfer everything to Schwab. The retirement accounts would be as in-kind transfers knowing that we will end up paying more in fees since Admiral shares aren’t available through Schwab. The non-retirement account could either be an in-kind transfer to VTSAX at Schwab or a sell/buy into a Yield Shield approach or SCHD (given all of the different tax implications above). Then, still keep our Schwab bank account since if that account ends up being closed and a check sent to us, at least there would be no tax and penalty issues.
With this all being said, I am starting to think that we are going to end up being in much a worse tax situation in Portugal than if we retired early in the US and just took the max withdrawals each year to keep us in the 0% capital gains tax bracket, while also being able to take advantage of capital gains harvesting each year (and while also maintaining low fees by knowing we could keep our investments held directly with Vanguard). I suppose this could be offset by a lower cost of living (depending on where we end up) and the consideration of the health care costs/savings between the US and Portugal. I know that it is a huge privilege to have the D7 Visa option available to us and I want to be appreciative to the country that we hope to call home and will be receiving the benefits of residency from. We are definitely not opposed to paying some taxes in Portugal; however, this 28% tax (in addition to likely more investment fees and costs) that we weren’t expecting is going to impact our overall FIRE calculations and possibly our timeline in being able to actually make the move in 2023 as planned.
We are so overwhelmed and are starting to question whether we even have enough to leave our jobs in a year and start this next adventure. Do we even have enough to retire early?!? If so, given the convoluted mess referenced above as it relates to moving to Portugal, has that become a pipe dream? Is our only option now to travel the US in an RV? Help!
Reading that was like: normal…normal…WALL OF TEXT.
That’s actually pretty common from of people who are facing a seemingly overwhelming decision and are panicking in all directions.
So my first piece of advice is: Relax. Take a deep breath, do some yoga, whatever. Things are rarely as complicated as they first appear. The trick to solving any big, scary problem is to break it down into smaller, sub-problems and tackle each one at a time.
Before we start doing that, though, please heed the Golden Rule of Personal Finance (a title that I just made up, btw), which is: Don’t Lie.
I’ve also read articles and forum posts from people using clever tricks like PO Boxes and VPNs to pull a fast one on their bank or (worse) the IRS, and my advice on this front is: Don’t do it.
Any long-term financial strategy based on deception is inherently unstable. If a slip of the tongue or an errant photo posted on Facebook can bring your finances crashing down, that’s not a good strategy. Always be up front with financial institutions about what you’re doing, or the consequences can be severe if they find out you haven’t been honest with them.
So with that being said, let’s figure out what each bite-sized sub-problem is and see if we can start chipping away at this, shall we?
Their Vanguard Account
Vanguard’s brokerage business is set up for US residents only, so if our readers were to move Vanguard would put severe restrictions on it. Reports range from freezing trading, to no longer allowing new deposits, to outright closing the account down as our reader noted. So if they’re planning on moving overseas, they should definitely move their assets to a more expat-friendly brokerage.
The problem is that because all their non-registered investments are held in VTSAX, which is a mutual fund, they can’t perform this transfer in-kind, and instead would be forced to sell everything thereby triggering massive capital gains tax.
This is why, instead of VTSAX, I recommend buying the ETF equivalent: VTI. VTI tracks the exact same indexes, it has a lower cost of entry because there are no minimum purchase amounts, and if you hold VTI inside a Vanguard brokerage account, there are no transaction fees either. Plus ETFs like VTI can be transferred to any other brokerage account, while mutual funds can generally only be held by the same issuing company. There’s literally no reason to own the mutual fund anymore.
So is our reader screwed? Nope!
Because Vanguard allows you to convert from their Admiral shares to the ETF tax-free!
Can I convert my conventional Vanguard mutual fund shares to Vanguard ETF Shares?
Yes. Most funds that offer ETF Shares will allow you to convert from conventional shares of the same fund to ETF Shares. Conversions are allowed from both Investor and Admiral™ Shares and are tax-free if you own your mutual fund and ETF Shares through Vanguard.Vanguard’s ETF FAQ
So now we have a solution to the first question.
- Call Vanguard and ask them to convert all your VTSAX shares to VTI ETF units. Make sure it can be done tax-free
- Open a new account at a brokerage company that allows expats
- Perform an in-kind transfer from Vanguard to your new brokerage company
Capital Gains Taxes
Question #2 is about Portugal’s 28% flat capital gains tax. A little background here: The D7 visa our reader refers to is Portugal’s long-stay visa available for retirees, and the NHR (Non-Habitual Resident) program is a Portuguese tax status for new arrivals that exempts them from having to pay tax on many sources of foreign income. Unfortunately, capital gains on shares is not exempted under NHR, and is subject to a flat 28% tax.
As we know, long term capital gains are taxed very favourably in the US, and if using a method known as Capital Gains Harvesting, can be realized at 0% if you do it slowly enough. That goes out the window if you become tax resident somewhere else.
However, that somewhere else being Portugal has a very profound impact on your spending as well. Our reader’s current spending in the US is around $6000 a month, but in Portugal would only be $3000. That is a massive drop.
So the big question is: Will the added cost of paying capital gains taxes each year materially affect their plan to retire?
To answer this question, let’s figure out how much this added cost would be. That’s right, I think it’s time to…MATH THAT SHIT UP.
First, we know that our reader’s projected living expenses will be $3000 a month, or $36,000 a year. We also know that VTSAX / VTI currently has a 1.2% dividend yield, which will provide $1,200,000 x 1.2% = $14,400 of tax-free income. So that means they need to raise an additional $36,000 – $14,400 = $21,600 from capital gains in order to fund their living expenses.
But how much do they need to actually realize to total $21,600 after capital gains tax is due? The math is a little more complicated than normal because of the way capital gains taxes are calculated, but it’s not too terrible.
First, let’s make a few variables. SBT will represent the value of the shares sold Before Tax. SAT will represent the value of the shares sold After Tax. And T will be the capital gains tax paid.
SAT = SBT – T
Capital Gains taxes are paid only on the portion of the gains that are realized, so we can’t just apply the 28% tax directly. Normally, in order to calculate this we need a detailed statement of our readers’ investment account to figure out their book value versus their market value, but they’ve conveniently told us that they are sitting on a $300,000 unrealized capital gain on their VTSAX holdings.
So, let’s make a few variables:
- UCG = total unrealized capital gain ($300,000)
- H = total VTSAX Holdings ($1.2 M)
- CGTR = Portugal’s Capital Gains Tax Rate (28%)
Let’s express the value of the shares sold as a fraction of the total holdings:
SBT / H
This will be a portion of the $300,000 unrealized capital gains and subjected to the CGTR (28%). So the taxes paid on this will be:
T = UCG x (SBT / H) x CGTR
Put that into the first formula…
SAT = SBT – UCG x (SBT / H) x CGTR
And now we solve for SBT…
SAT = SBT x (1 – UCG x 1/ H x CGTR)
SAT / (1 – UCG x CGTR / H) = SBT
SBT = SAT / (1 – UCG x CGTR / H)
Is the most intuitive formula ever? No. But now that we’ve solved it in this way, because we know all the numbers on the right, we can calculate the number on the left.
SBT = $21,600 / (1 – $300,000 x 28% / $1,200,000)
SBT = $21,600 / (1 – 0.07) = $21,600 / 0.93 = $23,225.81
Okie dokie. So this means in order to raise $21,600 from selling stock, they actually have to sell $23,225.81 pre-tax, and pay a capital gains tax of $23,225.81 – $21,600 = $1,626.81 each year. Let’s account for this in their $36,000 living expenses budget to make it $37,626.81.
Does this slightly higher spending level materially affect their retirement? Well, according to FIRECalc…
Nope. We are projecting a 100% success rate with those numbers, with an average ending portfolio size of about $8.5 million.
So, yeah. You’re fine.
Don’t Forget About Your Retirement Accounts
This article is already cracking 3000 words, so I’ll make this brief. This analysis is assuming that you’re only going to be living off your current VTSAX investments in your taxable account. Our reader has another $650k in about a dozen retirement accounts.
Because of the sheer number of these accounts you’ll definitely want to consult a tax specialist with US/Portugal experience, but from what I can tell there’s nothing in the Portuguese tax code that interferes with building a 401(k) conversion ladder. Each year, you convert an amount from your IRA(s) equal to your combined personal exemption. US taxes (and early withdrawal penalties) will be $0, and because Portugal’s NHR program exempts foreign income from taxation, Portugal’s tax bill would be $0 too.
Definitely confirm with an accountant before you do anything on this one, though. I love Portugal, but I’m not a Portuguese NHR tax expert. Our digital nomad friends use Moore’s Roland Tax Consultants because they specialize in International US taxes. Maybe give them a call?
I have to admit, this was one of the more interesting case studies that I’ve come across. Our reader wants to retire to Portugal, but the cross-border taxation implications was spinning them into a panic. But if we break their problem down into smaller bite-sized chunks, we were able to tackle them one-by-one until we can safely conclude that their retirement plan is A-OK.
What do you guys think? Is our reader’s retirement plan sound? Any Portuguese tax experts out there that want to chime in? Let’s hear it in the comments below!
Bonus: We are on the front page of BBC today because we have been featured in a short documentary about FIRE alongside Mr. Money Mustache and Rich & Regular. Check it out!
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42 thoughts on “Reader Case: Can We Afford to Leave the US?”
Fantastic case study, and mega props to the couple in question for their fortune and discipline! We don’t actually plan to become legit residents of a foreign country (curse our fantastic little city and almost-paid-off-house), we’d at most spend three months overseas each year, but it’s really enlightening to pull back the curtain and go deep on some of these relatively obscure issues that could interrupt folks’ plans.
The BBC video is great. Thanks for posting the link.
I just became FI in Portugal (I am portuguese) and I have started an early retirement in my career. I am 46.
Although not being any expert in cross-border taxation matters I am available to help in any other thing that might be helpful.
Let me know.
Damn, this article helped me a lot. Personally I have thought about being an expat to speed up FIRE, and have a significant majority of my money in Vanguard. I did not know that Vanguard is US only and if you leave you have to cancel your account. Now I have to think about my other investment accounts and how expat friendly they are.
*This does should like another article or an important note brokers vs expat friendliness.
Excellent article! I’ve been only purchasing VTSAX however I was thinking about relocating to Hungary or Ukraine once I reached FIRE. I thought I’d be able to still have my VTSAX. If I live abroad throughout the entire year, ie ex-pat, will I need to convert those to VTI?
I’m from the US and now live in Canada and from all the research I’ve done, once you leave the US, a 401k -> IRA -> Roth IRA conversion ladder is a no-no once you leave the States. That’s one of the biggest cons we’ve faced investment wise from the move as we now will have RMDs later on to try and optimize somehow. Not sure if this is only for US-Canada cross border FIRE folks or for anyone outside of the States but definitely do your research on that one prior to moving!
If anyone knows of any different ruling on this allowing non-US residents to actually do a conversion ladder, please share 🙂
Congrats on all our success and my vote is to go for it 🙂 You’ll figure it all out as you go. I know, easier said than done! Worst case, you cut back on a Sangira a week.
BBC video is great! Great job to you guys and also R&R and MMM. You are great advocates for the FI community.
If you join ACA (American Citizens Abroad) you can join the Credit Union affiliated with them, State Department Federal Credit Union. They don’t blink at my spending abroad, which is not the case with other US institutions.
And yes, Schwab is the way to go. For the retirement accounts, consider consolidating to simplify your life, and avoid having to file DOL forms when your Solo 401K (all together) reach $250K. Rollover the Solos to IRA and Roth accounts when you close the business. No reason not to get down to a single IRA and Roth for each person. MUCH easier to manage.
We are a Canadian couple, own 3 homes in the GTA and live off the rental income. Our funds are with Vanguard and we were hoping to move to Portugal in 2022. After much planning and discussions with our accountant, we have decided not to move. The new plan includes living in Canada for at least 183 days/year in order to keep our residency and healthcare status. We will travel the rest of the year.
The capital gains and all the taxes we’d have to pay to move are too complicated and too costly.
Are the taxes and capital gains “complicated and costly” because of the Canadian based rental income? Or is it your investment income that’s going to cost mega-taxes? I’m only asking because we’re planning to move to the UK next year and while we don’t have any Canadian real estate, we do have investments.
Mary, the capital gains are too high at the moment for one of our rentals. The other item that seemed confusing and we still don’t have an answer for is if we leave and have to pay a “departure tax” which requires you to pay 25% tax on your investments. For us it just seemed like too much to pay. You should consult a tax professional. Our accountant was unable to provide us with information on the departure tax.
“… the new plan includes living in Canada for at least 183 days/year in order to keep our residency and healthcare status…”
Seems like we are in similar paths. Would really love to understand more on how EXACTLY you are planning to execute this. Is there an opportunity for both of us to discuss the details offline and perhaps compare notes? l am truly curious to know if I am even in the same ballpark in terms of preparation/methods to stay always on the right side of the equation.
Something to consider, although it does involve real estate: The Portugese Golden Visa.
“The Portugal Golden Visa program has proven to be the most popular scheme in Europe with investors attracted to its flexibility and benefits. Launched in 2012 the investor visa program has been actively promoted internationally by the Portuguese government. An investment of €500,000 (or €350,000 reduced option) in real estate in Portugal will gain a residency permit for a family including dependent children. The golden visa can be renewed every two years providing the applicant spends two weeks in the country every two years.”
Keeping in mind that foreigners will not be able to buy property in Lisbon, Porto and the Silver Coast as of 2022.
there is Vanguard in Europe (and also iShares/Blackrock) but it’s not the same as the US one. As far as I know they are mostly commercialising an “European Compliant” version of their ETFs through brokers (like Degiro, Interactive Brokers Europe and many others…).
Also, bear in mind, I don’t think it will be easy for an European resident to find a broker in Europe that trades American based ETFs (VTI, VEA…) for legal reasons (these are normally blocked). As are the same ETFs in American brokers for European based customers. There are special conditions for that to be allowed however. Check that out first. So unless you get that, no VTSAX for European customers. Only S&P500 ETFs (from Vanguard Europe, iShares/Blackrock Europe, etc…) and of course many others.
A good source of information on trading ETFs in Europe is:
Is there a bug in the calculations? As per the information given by NHRHopeful
“Portugal does not step up the basis at the time of sale, once we are Portuguese residents. So, we will be paying 28% on the *total amount taken out* versus the true gain realized. ” So capital gains taxes payable will be in the order of 9000 $ or so, correct?
I think they are still ahead in terms of retiring in Portugal even after paying capital gains taxes.
I’m still at least 4 years from retirement, and I’m starting to feel as nervous about it as I am excited, when I’m only a few months out I’ll probably be terrified!
I’m planning to live nomadically but remain a tax resident of Australia, I hope this won’t cause problems for me with my Vanguard mutual fund, I really should look into that!
Great case study and more important than that, great job on the reader for actually achieving FIRE. I have no doubt that they will continue to make sound financial choices going forward.
Although they are looking for advice, I’m sure many of us would like to ask them for advice on how they got there at FIRE 🙂
Congratulations on the feature at BBC.
I really encourage NHRHopeful to check directly with Vanguard. Lately they are perfectly happy with US based clients who opened their accounts while being US residents moving abroad. If they go to profile and account settings they will see that the Vanguard website even offers the option to change you address to a country outside of the US.
They even allow non-US phone numbers in the contact info section.
You can’t become a brand new customer from outside of the US but you can still pretty much everything you usually do and need to do to manage your investments from out of the USA.
Also, in Portugal you will pay 28% on your capital gains (calculated like you would calculate them in the US). You won’t pay 28% on the total amount you withdraw. Capital gains are capital gains and this law is intended to attract new residents not to push them away.
I suggest they check this course, pricey but created by folks who did walk the walk and offer really up to date and vetted info:
The non habitual resident regime would tax any withdraws from 401(K)/IRAs at 10% for 10 years which is pretty sweet if you are 59 1/2 or older.
Of course I advice that they check with a reputable tax advisor. In the long run they will save time, money and headaches.
This was a useful post. Thanks!
In this case, I think the best comment I can leave is to pass on a link to a relevant YouTube channel by a couple of FIRE personalities who have retired to Portugal, Our Rich Journey. NHR Hopeful may find them a very helpful resource – they’ve lived both in Porto and are now living in a more rural part of the country and I believe they also have their investment accounts through Vanguard.
They’ve lived in Lisbon, not Porto.
Either way, I imagine going over the material of people who have done extensive research into living in the country and made that research available would be helpful for them.
I agree w/ you. It was just a correction for other readers who may be interested in your comment.
Porto and Lisbon are two very different cities. Lisbon is the capital. It is much larger (4M citizens). It is closer to southern part of Portugal and the beaches. Since kings use to be establish in Lisbon, there are a lot of old and very beautiful castles and other important buildings to visit in the area.
Porto is a medium sized city in the northern part of Portugal (1M citizens). It is much cheaper than Lisbon, altough Lisbon is not very expensive either. People are very kind and live a simpler life. It is located in the Northern part of Portugal. The ocean water is very cold, so not as much suitable for swimming. There are places to visit around, mostly smaller towns and rural areas, a lot being related to wine production as it is one of the most reknown wine production region in the world (Porto wine and vinho verde).
My family is from the northern part of Portugal, near Porto. It is a very nice place.
I like “Our rich journey” channel. I’ve watched them since before they announced they would move to Portugal. So I was very happy when they announced they would move there. But they choose to live in Lisbon, not Porto. 😉
See, now you’re making me want to visit both cities even more! 😀
Cool ! 😀
There’s absolutely no need to spend 3k $/month, unless you want to live like a a Sheik. You can have a super comfortable lifestyle with about half that amount. Also you don’t need to sell entirety of your assets right away. Yeah, 28% is awfull, but luckily for you… you’re not trying to build your portfolios from scratch within the country. The retuns on remaining assets should more or less cover your costs in taxes!!!!
First post but long time reader 🙂
What makes you think dividends are not taxes as well? As far as I know, they are. Also, Portugal calculates capital gains taxes on a FIFO (first in first out) basis, meaning that virtually *all* cash out will result in a 28% taxes. If I’m not mistaken and this is indeed the case, the readers will need somewhere closer to 36k/(1-0.28)=50k.
One a more positive note, health care and education is mostly free.
I would love to learn more as I’m considering a similar approach to early retirement.
Hello from NZ where to acquire NZ tax resident status you have to stay in NZ for 183 days after which you have to be away for 325 days in a 12 month period to become a non tax resident. Meaning I can come to NZ mid Nov, spend Christmas with family and friends, travel a bit around NZ and leave around mid Feb and than travel for 2 years without losing my tax resident status. A US expat friend who is currently in NZ said to read this article which may help https://expattaxprofessionals.com/resources/non-citizens-us-tax-residency. And well done on achieving Fire.
This is a very complex case. Made me think a lot ! 🙂
I think general calculations and asumptions are about right. Although, they might definitively want to consult with a tax expert before doing their final move.
I also wanted to add another tax idea to their plan, if it fits them well.
Since they have massive amounts of unrealized capital gains (which is a really good thing indeed), why not use 2-3 years as “transition years” in the USA to trigger as much capital gains as possible before moving officially to Portugal ?
They could still go to Portugal as foreigners during that time, plus have some time travelling in the USA, or other parts of the world.
Then settle in Portugal permanently afterward with an almost 300 000$ additional cost-base on their investments.
If they can do someting like that, that’s an additional ~84 000$ (300K$ X 28%) in money they can afford to spend directly in the Portugal economy at a future date instead of giving this money to the Portuguese government, which will unevitably squander this money on bureaucraty and lots of other useless stuff anyway.
But I don’t know if their situation allows to do this or if they have any interest in postponing their plans for a permanent residence in Portugal.
Anyway, that is a very cool plan. Wish them everything works to the best !
So US citizens don’t need to pay US taxes if you become residents of Portugal??
Yes they do.
I don’t know US taxation, but what I have understood from that case is that investment income under 40K$ have a tax rate of 0% (dividend and capital gains), so they would not need to pay taxes as long as they stay below that treshold.
People should pay for expert advise and not try to get free non-expert advise. Well over $1 million in assets and too cheap to hire true professionals to sort this out. Shameful!
WALL OF TEXT
Yeah! This is where I just go 🤦🏻♂️.
But they still have to get an understanding of the tax regime they will be in.
Hire a tax expert for the details. But they are entirely responsible for the life choices they make. A tax expert will never be available 24/7 for all the choices or ideas that they have in their life.
I think here is a good place to share general ideas / tips.
I agree they need to understand what they’re doing. Bryce is totally on point when he pointed out the wall of text. They have not invested the time to get a proper understanding of what they want to achieve. I bet they have pitched this all over the place, gotten a thousand opinions from people who have no inkling of what’s really involved and now they are doubting themselves. Information overload and most likely pointless information because they are looking to trash their plans now.
This is the piece I always have to laugh at (I’m not laughing at them. I’m laughing in frustration because people seem to like to overcomplicate their lives unnecessarily). People in general seem to like doing things in extremes. What’s wrong with just going to Portugal for a period of the year and for the rest of the year, be elsewhere? They don’t impact their tax residency status by staying below the residency thresholds and keep things flexible.
How about just KISS (keep it simple stupid)? Nothing wrong in easing into this gradually.
Anyways, they’re not mentally ready to make the leap. That’s the biggest hurdle and until they address that, they will doubt their decisions and be miserable. When they do decide to do something like this, they should feel happy and relaxed.
Spending a few thousand on a tax professional might be the best investment they make if it gives them peace of mind and confidence in the decision they make (even if it’s to decide not to proceed).
Portugal. Nice country, climate, people, food. Language a bit difficult-Romanian is my mother language, and Italian, French, Spanish come easy-but not spoken Portuguese. Reading is better though. Language helps with friends and hobbies.
Ideas: test drive Portugal: 6 months not 3 weeks. Main point: social, relationships, hobbies are more important than $. I FIRE’d at 58, and found this the biggest challenge, not $. 6 months will show: can you make friends? have 3-4 hobbies, volunteer? Will you be able to learn the language?-although English is widely spoken. From my experience, when you immigrate to a new country, it can take a very long time to make new friends.
Fin. Independence = what you have / expense; all good there. Why not 6 months in Jan 2022 ? (provided covid is gone)
If everything is OK after six months, say bye to family, friends, not before.
Dividends and not lying – spot on. Check with tax advisor, pay some $.
Vanguard options besides Schwab: TDAmeritrade. Good platform, especially for ETF’s including VTI, just keep it simple, the choices are overwhelming. As an example, you can’t open a TDAmeritrade IRA as a Canadian resident, however you can easily open a “Rollover IRA”, so find out by calling them not from the website. Maybe is the same as a Portugal resident.
With your spending vs. what you have, I think you’ll do well in either scenario – Portugal or US. Portugal is still on our mind too. I’d be curious to know your story in 2 years. Good luck!
100% agree with everything John mentioned above. Spend a few months/year in Portugal before committing to a permanent relocation. Everything will clarify for you during that time.
Financial and tax issues are not your main problem. You clearly have enough funds to make this work. You will pay a little higher taxes in Portugal. So what. The COL in Portugal will more than make up for it. Spend a few $ for a professional to help you iron out the details – easy, done.
Your main challenge is to make sure you will fit in and actually enjoy living there permanently. Aspects like culture, customs, language, environment, politics, weather, social connections, and many many others you haven’t even thought about can make or break your plan WAY easier than than a few extra $K in taxes. I did a test run in another country (you can check my comments under the FI in Poland post) and in the end decided to not pursue FIRE there. Even though I was born in that country, speak the language pretty well and still have some family connections, there were so many unexpected important issues I had no idea about (and non of them financial). Doing a test run instead of cutting everything loose and jumping in head first saved me a lot of money, time and trouble.
You are smart. Very, very smart. I value the perspective you provided both here and on the Poland post. 👍
Hi, I’m wondering which brokerage is more expat friendly? Is Fidelity better than Vanguard in that regard? I’m wondering if this should affect where I should invest my money. Thanks!
Did you speak to Vanguard about non resident status?
I had spoken to them and was confirmed that no issues in maintaining existing mutual fund units. I can sell VTSAX as well.
We cannot buy additional units of VTSAX but can purchase VTI ETF.
So it should not be a problem.
Nice to know about VTSAX to VTI conversion as non-taxable event.
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