We often get questions from readers about currency risk when moving overseas… Concerns about currency exchange fluctuations are valid, especially when moving to Europe, where the currency is stronger than the U.S. dollar.
The euro-dollar exchange rate has been relatively favorable the last several years, even reaching parity in 2022, but the fact is that you’re losing money when you earn an income or pension in dollars and have to convert it to euros in order to live on this side of the pond.
A retiree on a fixed income could see his quality of life eroded by a depreciating home currency. Don’t let this keep you from making a move to a country where you want to live. You can mitigate the currency risks.
It’s an inconvenience my husband and I grapple with on a daily basis living here in France. One way to soften the loss is by opening an international exchange account that allows you to hold multiple currencies (such as Wise), keeping a close eye on rates, and moving large sums from dollars to euros when favorable.
Quality Of Life Overseas
Another strategy to protect yourself would be to buy a place of your own to live in the country where you want to be, paying in full up front, when you make the move or even in advance of a planned move, to take advantage of a favorable rate of exchange.
Housing cost—a mortgage or rent—is generally the single biggest expense in any budget. If you own your own home (house, apartment, what have you), you eliminate the risk of unfavorable currency fluctuations for that part of your monthly expenses. Taking this approach, you could buy your retirement home in Portugal, for example, today, while the U.S. dollar is riding strong versus the euro.
Do this, and you’re locking in your housing cost at today’s very favorable exchange rate. A 100,000-euro condo on the beach in the Algarve (where I’ll be next month for our Live And Invest In Portugal Conference) would cost you close to just $109,000 at the current rate of exchange.
Housing covered, you’re largely insulated against negative currency fluctuations. The currency moving against you would affect your day-to-day living costs only, costs you can control at least to some extent.
The dollar could continue strong against the euro for another 12 to 24 months or longer. On one hand, this means it could be better to wait to buy in Europe. On the other hand, while you’re waiting, property prices could appreciate.
If you’re retiring in the near term and dream of Europe, I’d encourage you to take advantage of the current window of opportunity to own a place of your own for what can amount to a bargain and discounted rate. With a European pied-à-terre of your own, you know what your retirement housing cost will be today, tomorrow, and forever—zero.
If the euro continues to depreciate, great. Your day-to-day costs of living continue to depreciate. When the euro turns up against the dollar again, you could likely ride things out. Over the course of a 20-plus-year retirement, you should expect to experience a slow roller coaster of exchange rates.
Here’s another strategy for reducing your currency risk in retirement—invest locally to earn income in the same currency as your expenses. This could be as simple as buying a local CD… or more complicated—buying a rental property, for example, or starting a small business.
While we aren’t yet able to buy our own home here in Paris, my family has hedged our currency risk by investing in both real estate and agriculture in Europe.
We bought a preconstruction condo in North Cyprus a few years ago which is set for completion this year. We haven’t yet decided if we’ll flip it immediately or rent it out to earn some extra cash before selling it on.
We’ve also bought into Spanish truffles a few years ago, which have earned us a modest sum in the last couple of years but which will continue to throw off an income that will grow each year for decades to come. This legacy investment will not only help us pay for our lives here in Europe, but eventually our daughter’s, too.
Whatever you do to earn local currency, don’t move all of your assets to your new country. Hedge things by keeping some of your investments in your home currency… or in another currency in addition to your new one.
Here’s one more option for protecting your pension check against currency fluctuations: Don’t put down permanent roots anywhere. Rent your residence wherever you decide to live, then pack up and head to a lower-cost-of-living country that appeals when the local currency turns against you.
This kind of perpetual traveling can be done short- or long-term. You could make that move to Portugal today and stick around until the euro gets too expensive for you… if that happens again in our lifetime. Then you could shift your retirement to another country with a more attractive exchange rate.
The bottom line is that you can take steps to take control of your cost of living in another currency. Don’t let exchange rate fears keep you from acting on opportunities for spending time or taking investment positions in Europe.
Bonne route,
Kat Kalashian
Editor, In Focus: Europe
