Retiring Early When You May Not Stay

Financial independence on a work visa is a strange goal at first sight: the visa exists because you work, so stopping work in the United States is rarely an option until you have a green card or citizenship. Yet the people most likely to reach independence early are often high earners on visas, and many of them will spend part of their retirement in another country. This chapter shows how the classic FIRE arithmetic changes when you may leave: how a cheaper country shrinks the target, how US withholding on retirement accounts grows it again, and the risks that do not show up in a single number.

What "early retirement" can mean on a visa

On a work visa your status depends on employment, so financial independence usually means one of three things.

• Independence, then a choice. You keep working while you build the portfolio, and once it is large enough the job becomes optional. Whether you then stay, leave, or work less depends on your status at that time.
• Retiring after a green card. Permanent residence removes the link between status and employment, so the standard FIRE path applies, with the long-term consequences described in chapters 2 and 6.
• Retiring in another country. You build the portfolio in the US and spend it somewhere cheaper, usually the country you came from. This is geographic arbitrage, and it is the version this chapter focuses on.

In all three cases the target is the same idea: the portfolio that can pay for the spending nothing else covers, divided by a withdrawal rate. What changes is the spending, the taxes on withdrawals, and the length of retirement.

How a cheaper country shrinks the target

The FIRE number moves one for one with the spending it must cover. Spending half as much needs half the portfolio, and because you are already saving, it gets there in much less than half the time.

A household that spends $80,000 a year in the US needs $2,000,000 at a 4% withdrawal rate. With $300,000 invested and $4,000 saved a month, growing at 3.9% a year after inflation, it gets there in about 19.4 years. If the same life costs $40,000 in the country it plans to retire to, the target is $1,000,000 and the time falls to about 9.8 years.

The halving here is an assumption chosen to show the mechanism, not a statement about any country. Real price differences depend on what you buy. Housing and services are often much cheaper; imported goods, international schools, private health care and travel back to the US can cost as much as in the US or more. The geo-arbitrage calculator and the return home or stay calculator apply a published price level for each country to your spending, which is a better start than a guess. Then adjust for your own life.

How US withholding grows it again

Here is the part most FIRE plans on a visa leave out. If you retire abroad as a nonresident and draw from a traditional 401(k) or IRA, the payer withholds US tax at a default 30% of each payment unless a tax treaty lowers it. That withholding comes out before the money reaches you, so the portfolio has to produce more than you spend.

One way to see the effect is as a lower effective withdrawal rate. If every withdrawal loses 30%, a 4% withdrawal leaves 2.8% to spend; if half the portfolio is in pre-tax accounts, the average loss is 15% and 3.4% is left.

To net $40,000 a year, a portfolio with no withholding needs $1,000,000. If half of it sits in pre-tax US accounts withheld at 30%, the target is $1,176,471; if all of it does, $1,428,571, which is $428,571 more.

This is a cautious picture, for three reasons that chapters 4 and 5 explain. Withholding is not always the final tax: part of a distribution can be taxed at graduated rates on a nonresident return and some of the 30% refunded. A treaty may lower the rate. And your new home country may tax the same income and give a credit for the US tax, or not. The planning lesson is still sound: the mix of pre-tax, Roth and taxable money you hold when you leave can move the target by a large amount, and it is something you can still shape while you work.

Why the plan has to last longer, and survive more

An early retirement is long. Someone stopping at 45 may need the money for 45 years or more, against the 30 years the classic studies tested. Retiring abroad adds risks that the simple number does not see.

Inflation where you spend. Your portfolio is mostly in dollars, but your bills are in the local currency. If local prices rise faster than the dollar holds its value against that currency, your spending in dollars rises faster than US inflation.

At steady 7.0% returns and 3.0% inflation, a 4% first-year withdrawal of $40,000 lasts all 45 years; the highest steady rate that lasts is 4.5%. If spending instead rises 5.0% a year in dollar terms while returns are 6.0%, the same plan does not last, and the highest rate that does falls to 2.7%. These are steady-return illustrations, not forecasts; the point is that the gap between your portfolio's return and your own cost of living is what decides how much you can draw.

Health care. Medicare generally does not pay for care outside the United States, and private cover abroad gets more expensive with age. Price it for the country and age you plan for.

Family and returning. Many people retire home partly to support parents or children. Those costs, and the chance that you come back to the US for a child's education or your own care, belong in the spending figure.

Sequence of returns. A market fall in the first years of retirement does more damage than the same fall later. The sequence of returns risk calculator shows the effect on your own numbers.

Taxes in the country you retire to

US rules are only half of it. Most countries tax their residents on worldwide income, and the moment you become resident there your US accounts, Roth included, may be taxable in ways the US does not tax them. Some countries give returning citizens a transition period; some do not recognize the tax-free status of a Roth account; some treat US mutual funds and ETFs harshly. Read the tax treaty between the US and your country (the IRS publishes the full text and a technical explanation of each) and get advice in that country before you move, ideally a year ahead, because some of the best fixes, such as selling and rebuying investments or converting accounts, only work before you change residence.