"I'm a renter and do not own real estate since my divorce." (Photo subject is a model.)
Dear Quentin,
I greatly enjoy reading The Moneyist. I need some advice and I hope you can provide a little enlightenment.
Short backstory: My second husband had a gambling addiction and unbeknownst to me, cleaned out our savings and joint investment account over the course of six years for a total of almost $900,000. He managed these accounts and assured me we were in the $1 million territory. However, he never showed me documents to prove it and I didn't ask because I loved and trusted him utterly; he also handled filing taxes.
'I'm about to relocate to the U.K.'
I never saw the losses on our tax returns, until a forensic accountant brought it all to light during the divorce. I learned a hard lesson - a very, very hard lesson - about abdicating my financial responsibility. I'm 65 and have been making six figures in a new job for the past four years. I have about $80,000 in my 401(k) and $10,000 in savings. I had an inheritance that I paid off all my debt with. I'm a renter and do not own real estate since my divorce.
I am a dual citizen of the U.S. and U.K. and I'm about to relocate to the U.K. for a new position within the global company I work for. I hope to work for five more years and then retire. Unfortunately, I will no longer be able to contribute to Social Security, but will be contributing to the U.K. pension system, which won't do me any good as one has to work 10 years to draw that benefit. But the cost of living will be cheaper there.
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Saving every dollar and dime
I'll be staying with family members for a few months after my move. I hope to find something affordable that I'm able to put 50% of my GBP80,000 income as well as my 20% bonuses into the company pension plan for the next five years (they do an 11% contribution). Now it's all about saving every penny, dollar and dime. (Don't worry about him, he already remarried a much older woman who's affluent and who's also wise enough not to put his name on any of her assets.)
'I hope to find something affordable.'
Regarding my Social Security, I was planning to contribute to it until age 70 so I could get the maximum amount. However, I'm a bit confused, I was under the impression I needed to continuously contribute all the way up until age 70 to get the maximum amount, but others have said that even if I stop contributing now with this move to the U.K., I will still get the same maximum dollar amount just by waiting until 70. Is that true?
Should I pull my 401(k) out and use it as a down payment on a home in the U.K.? I have serious concerns about financial stability as I age and it is not in my plans to seek another marriage. I had hoped to buy a little piece of land and put a prefabricated HebHome on it and have it paid off by the time I retire so I at least have the security of my own home and not be subject to rising rents as I age. I will likely be living off Social Security, and whatever I manage to accumulate.
Any financial wisdom you can impart is greatly appreciated.
Once Bitten Twice Shy
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You can email The Moneyist with any financial and ethical questions at [email protected]. The Moneyist regrets he cannot reply to questions individually.
You are on the precipice of your new life and the U.K. is a great place to start.
Dear Once,
I salute you for the courage it has taken to get to this point.
Whenever I face a difficult or unwelcome development, I tell myself: "Quentin, this is another human experience you get to have." You've had to journey through one such unexpected detour in your life. Anyone who has experienced financial loss, either through bad investments or a third party's misdeeds, will know the kind of stamina it will have taken to get you this far. Now you are on the precipice of your new life and the U.K. is a great place to start.
Financially, you probably come out ahead if you use that $80,000 to buy a home when you move to the U.K. If you bought a home for $300,000 (I'm sticking with dollars to keep it simple) using your $80,000, at a 6.7% interest rate, you would have a monthly payment of $1,420. You would have $195,000 left on the mortgage after 10 years and, with 3% annual increase in value, end up with a house worth $403,000. That's $208,000 in equity.
The math suggests you're better off buying.
If, on the other hand, you left that $80,000 in your 401(k) for the next 10 years, assuming a moderate 7% annual return (again, to keep it simple) you would probably/maybe have $157,372 in your 401(k). So you would come out ahead by $50,600, but you would still be renting. So the math/logic suggests you're better off buying. The scales would tip in favor of you keeping your 401(k) invested if you had more money invested, but you would not have those 10 years living in your own home.
The good news: You will still reap the benefits of delayed retirement credits if you wait past your full retirement age (67) to collect Social Security. Each year you delay, your benefit increases by 8% until you reach age 70. Your Social Security benefits will be determined by your 35 highest earning years. You will be able to collect those benefits when you reach the appropriate FRA, or beyond, if you decide to wait.
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Your Social Security dilemma
Your joint U.K./U.S. citizenship will serve you well after your reversal of fortune. You will require an income of around GBP44,000 a year for a comfortable retirement in the U.K. and GBP32,000 a year for a moderate retirement, all depending on where you live, according to Pensions UK, a nonprofit organization that aims to help people plan their retirement. In the U.S., you would need closer to $1.25 million, based on the latest estimates from Real World Investor, an investing website.
The U.S. has a tax treaty with the U.S., meaning that you don't have to pay income tax twice on your income or investments while living in the U.K. as a dual U.K./U.S. citizen. If you are no longer employed by a U.S. company you, however, you are not typically permitted to contribute to a 401(k). In addition to the U.K., Germany and Canada, among others, have treaties that allow credit for U.S. taxes paid.
Your joint U.K./U.S. citizenship will serve you well.
Some cautionary notes: The U.S. dollar is having its worst year since President Richard Nixon was in office and some analysts believe it will get weaker in the second half of the year. That said, the U.K. pound has been having a tough time too on concerns about the British economy. A weaker dollar means you won't get as much bang for your buck. At the moment, expect to get around 74 pence for one U.S. dollar. (You would have gotten a better deal a couple of years ago.)
The truth is a happy and peaceful retirement will depend on whether you have enough money to cover your expenses, your lifestyle and quality of life. Even though some people require millions of dollars in retirement to take cruises and live large, the latter is not ruled by money. It's ruled by your own tastes. Would you, for example, prefer a weekly card game with friends or would you rather be a member of an exclusive country club?
You have five years until retirement and many more to build a community.
Related: 'I have a degree in economics': I'm 70, earn $250K a year and have $3.7 million in investments. Is it time to retire?
Check out the Moneyist private Facebook group, where we look for answers to life's thorniest money issues. Post your questions or weigh in on the latest Moneyist columns.
Previous columns by Quentin Fottrell:
'I have felt invisible, disrespected and heartbroken': My firstborn son wants nothing to do with me. Do I cut him off?
'I'm considering giving up my U.S. citizenship': I'm moving to the U.K. How should I invest my $30,000 cash?
'The selling agent is long dead': My $250,000 term life-insurance policy costs $2,000 a month. I'm 80. Is it time to ditch it?
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-Quentin Fottrell
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