Our family of 3 will be pulling the plug in 18 months to FI abroad!! I enjoyed the other story about the last sprint so much that I wanted to share our story. I realized that having kids make things more complicated but at the same time more interesting.
First thing first, we are FIRE-ing with a toddler so there is a lot to plan for and consider.
The reason we want to FI abroad:
Practical reasons: lower expenses abroad because to FI in Switzerland, we’d need to work for another 7-10 years, we want these years back for ourselves.
Immerse in another culture that we like. We’ve visited the destination country many times and actually have quite a few friends there.
Back up plan:
Come back and work in CH (spouse is Swiss so no issue with residency)
Here is our final count down task list:
Apply for a long term resident permit in the destination country: we are not fond of the digital nomad life style with or without a toddler because I think we’ve passed that age. We’d like to spend 1-2 months in another city every year but to be really immersed in it.
Hire a tax consultant in CH and in the destination country: we want to be 200% sure of our tax liability in CH and in destination country, especially if we are withdrawing our CH pension (i.e. foreign sourced income).
Banking: keep one bank account that is friendly to Swiss abroad (non-EU), any recommendation?
All the administrative moving out stuff (cancelling bank accounts, moving out, cleaning etc.)
When we decided to prepare for FI abroad, we calculated we needed 1.2M. And then our toddler came along and we upped the expense budget a bit more, 1.4M is sufficient but we will probably end up with more by the time we leave at ~ca. 1.6M.
Thank you for sharing that, I like stories of early retirement, this means that the goal has been achieved! Well done!
I think taxation is the most complex part but you will hire a specialist for that.
I’ve few point that come to mind:
To finance yourself your will live of another income stream or only selling your investment shares?
Do you have a backup plan or a way to reduce expenses further in case the market tank, to avoid selling at the bottom?
Since your toddler will soon reach school age, do you know how public schools are in the destination country, do you need private school, homeschooling is allowed?
Don’t you think you’ll get bored in the long run?
And finally, do you mind sharing your age bracket and destination ( continent or country) ?
We get into the nitty gritty detail of how to fund our retirement: we are using a concept that draws inspiration from another FIRE-ee. The basic idea is to have 3-5 years of cash cushion (undecided yet). Suppose we need 40k to live on per year, we want to have 40k x 3 = 120k of cash/fixed deposit/bond. But we expect income from rental properties and dividends. Let’s say these amount to 10k per year. We could also shift our portfolio to more bonds to increase this regular income. Then the cushion we want to have is (40k - 10k) x 3 = 90k cash/fixed deposit on hand. Why 3? Because it takes on average 3-5 years for a bear market to recover, depending on the quantile we look at. If we are more risk adverse and if we are in a bull market, we’d do 5 years, but it seems like we are already in a bearish environment so we’d probably go for 3.
How will we come up with this 90k cash? At first, it will be by cashing out our pension when we leave. Then during the next 3 years after that, we will observe the market and sell to replenish our cash cushion and hopefully either by regular selling of shares or selling at a higher point, we minimize the probability of seling when the market tanks.
We will send our son to private/international school. This was always part of our budgetting when coming up with our post-retirement expense. I think we even delayed our retirement a bit just to save enough and ensure we can afford that. The fee ranges from 5k - 25k USD per annum with higher grades costing more. And then there’s also university, which we budgeted to cost 40k per year including living expense. There are of course cheaper options, say if he decides to come back to Switzerland for Uni. We hope to keep him enrolled in German classes so this option stays open but as you know, kids will be kids, and we might not be able to force it when he is a teenager and makes up his own mind.
In terms of getting bored, my spouse and I have discussed many times. We don’t think we will sit on a beach doing nothing. I read quite a few books about people who have done it and none of them ended up doing nothing. We always said, the goal to FIRE was to free ourselves of the “should-do’s” and pursue what we truly want to do. I resonate a lot with the 4 pillars of happiness: belonging, purpose, transcendence, and storytelling. When you FIRE, you are forced to reeximaine all these. The *belonging" aspect will be the most difficult to re-establish. I think it will be difficult but hopefully well worth it and you’d come out knowing yourself better and lead a more fulfilling life. I could be wrong but it will be part of the journey!
Our age bracket is 35-40 and our destination is Asia.
Hopefully we wouldn’t have to. We’d regularly sell to replenish the 3 year cash cushion. So at any given point, we’d have to sell very little. It may be that we would have to sell at the bottom but it would be a small amount and so the impact will be small.
High allocations to cash reduce risk in the short term but likely have the opposite effect in the long term
You might have seen analyses like the one Poorswiss ran showing that portfolios with higher equity % have lower failure rates over the long term: Poor swiss Trinity study
With a 4% withdrawal rate, having 10% in cash earning zero(*) means the remaining 90% has to earn a higher return (4.4%) to avoid depletion of starting capital.
(*)real returns on cash are negative currently
Make sure to consider in adbvance what you will do if and when family in Europe become frail or ill - how you will feel about being able to visit them less easily? Also if you will be happy relying on local healthcare if and when your family develop age related illnesses ?
It would be a financial shock if you decide to return to Switzerland without having accumulated Swiss salary
Hi @DalFonso, first of all, congratulations ! I’m happy that your FI dream is approaching and wish you and your family all the best !
I have slightly different plans i.e. at some (relatively far) point in the future I’d like to go on the “traveller” way, keeping our center in CH (in which case I’ll have to swallow the mandatory health insurance PLUS consider - on top of that - a world health insurance…gulp !).
What kind of plans do you have regarding health insurance ? Did you already find a provider / have a quote for your family setup ?
Barto thank you for your questions. I think your questions probably resonate a lot with people our age, starting to have to worry about parents’ health.
High allocations to cash reduce risk in the short term but likely have the opposite effect in the long term
Since the cash cushion is relative to our expenses and not as a porportion of our asset, by the implication of the rule of 25, the asset should grow over time such that the proportion of our cash cushion relative to our asset will become increasingly small. We are also in a very good time (may not last) just having cash deposited in IB earns you some decent interest.
Make sure to consider in adbvance what you will do if and when family in Europe become frail or ill - how you will feel about being able to visit them less easily? Also if you will be happy relying on local healthcare if and when your family develop age related illnesses ?
We thought about this a lot too but it’s also a reason that we should go now when family is still healthy (knock on wood). We might be able to visit them less often but when we do we can also allocate more time since we won’t have our work obligations. I’m not sure about your last question, our parents are not going abroad with us so their local health care will be from developed countries. We also thought what if something happens to us then we’d definitely regret not going when we are still fit and healthy. One year gone is one year gone.
It would be a financial shock if you decide to return to Switzerland without having accumulated Swiss salary
We thought about that but we’d go back to work if we decide to return to CH. We might have a smaller saving and pension (and maybe salary) because of the years abroad but we would have had devoted more time with our toddler for a few years.
Global health insurance is a big question. Very brave of you to do the “traveller” path, we also considered that when we didn’t have kids. As for health insurance, we are looking but haven’t settled for one. Many nomads recommdn Safety Wing, Genki, World Nomad…they are all very affordable but usually with less comprehensive coverage. We are pretty risk adverse and since won’t keep our Swiss insurance, we want one that is very comprehensive so AXA and CIGNA are the big contenders now.
Last time I checked these are not full fledged insurances. They have a passus which says that you have to be able to be insurable in a home country.
Basically, if the cost for them is higher than 50k (or whatever is needed for a medical transport), they ship you back home and tell you to get insured over there.
These are rather “travel insurances +” for long term travel than a proper health insurance.
Here there is an article about the subject, for international insurances they advise Cigna, Foyer and Globally health (they might have interests in advising such companies, though… I didn’t check).
For us, considering we’ll have to keep also the Swiss basic insurance, it might be worth it if we can complement it with some world package which does not force us to fly immediately back to CH once we have to do some basic stuff (I don’t know if such products exists, indeed; I’ll have to investigate once our target date will be closer…)
I’ve used Cigna Global before. Their Expat insurance is great, lets you choose from all sorts of deductible/copay options (your creativity is the limit here, their underwriters will quote you a price for anything) and costs one fourth (!) of the Swiss compulsory insurance.
Easier if you aren’t forced to underwrite crap health risks at subsidized prices
EDIT: Yes, I found it through staatenlos.ch, the sister site to the one you linked. Heuermann is funny
10 years is not enough time to compensate for the volatility of stock markets. If my life expectancy at retirement is 10 years and not 30+ then I agree a higher cash allocation would make sense.
Of course, stock markets increased by ~300-400% since 2010 - anyone staying in cash in 2000 lost out.
If you are drawing down a regular amount (40k per year) more often that not you will be withdrawing when you are in profit. Time in the market wins
I think maybe the concern around keeping 3 years of expense as cash concerns some people because you think that’s a long term thing. Most scenarios where we might end up having not enough money (according to my simulation) were ones where we hit a 3 year+ bear market at the beginning of our retirement. If things go accordingly, our asset base will grow and our dividend income will increase, such that we can start cutting down on the cash cushion (because regular income increases) and it becomes a small part of our overall asset.
I should also mention that our expected withdrawal rate is below 4%.
I’m not quite sure why so many people focus on that. IMO you can ignore inflation, diversifying asset classes (probably not cash but fixed income/bond) is still important for many people to lower volatility (and sometimes increase returns).
Yes you might lose long term, but given human life is not infinite you still care about sequence of returns and volatility (it also helps you sleep at night.
Maybe call it a wealth preservation strategy if it bothers you. But if you compare with inflation, it’s also fairly frequent to have years where the stock market is (a lot) below inflation, doesn’t mean it’s not useful.
I don’t think a large cash position is a good option for diversification over a long investment period. It is almost guaranteed to lose value in real terms.
From the linked article I suspect @dafonso has mortgage loans secured on rental properties. This would have the net effect of borrowing money at a higher rate to have cash earning a lower rate (apologies if I got it wrong)
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