UPFRONT

How Low Will Our Dollars Go, and Now Where Can We Go?

The long term trend for the value of the dollar is down, way down, and this is still true even after many years of steady decline. The reasons are many:

• Massive federal deficits which will take many years to whittle down
• US government weak dollar policy as a way to deal with the deficits
• Artificial weakness of the Chinese currency (now a powerful world economic force)
• Success of the Euro as a rival world reserve currency

So what's a current or future retired American expat to do? First of all, don't panic. Second, wake up to how important a weak dollar is to your current and future expat standard of living. Finally, take action to manage that risk.

Don't Panic

Don't panic? How can we not panic?

Well, its not all bad news out there! There are still retirement destination countries which haven't experienced currency strengthening against the dollar. These are now prime targets for Americans looking for the maximum bang for their retirement bucks. These include countries as diverse as Mexico, Argentina, and the Philippine Islands. Of course their currencies can strengthen at any time, but the fact that they haven't yet is a strong sign that they will continue to be relative bargains for Americans.

On the other hand, countries whose currencies are already much stronger are now significantly less affordable for Americans. These also include a diverse group of nations, from Thailand in Asia to Brazil in South America.

Countries which use the Euro currency are now only affordable to really wealthy Americans, and there is no sign that is going to change anytime soon. If you're wealthy, you know who you are and we wish you great happiness. However, here at RetireAway we know the vast majority of Americans interested in retiring overseas are greatly motivated by increasing their retirement standard of living, not decreasing it. 

Wake Up

The weak dollar is here to stay for the foreseeable future. Most economists say it is only going to get worse (weaker). Wake up to this important factor in your retirement abroad planning.

Take Action

So what can you do to defend your retired expat standard of living? There is a lot you can do; here is some food for thought and discussion.

For those planning to retire overseas:

• Save more money for retirement. Most likely, you are going to need it.
• Pay more attention to those retirement destination countries with weaker currencies versus the dollar. These are quite often troubled countries, but you can't get something for nothing.
• Take another look at lower cost destinations within the United States, eliminating your currency risk. Yes, we at RetireAway focus on retiring outside America, but a weaker dollar makes this interesting choice less possible for low income/assets Americans.

For those already living abroad:

• Look for ways to diversify your currency holdings. Consider moving a greater portion of your investments to non-dollar based vehicles. Consider buying a house or apartment in your new country, locking in your housing cost, and holding a valuable foreign currency asset as a hedge against your dollar-based income and investments.
• If you are still healthy and flexible enough, consider moving to yet another foreign country, one with a better prospect of continuing to have a weak currency against the dollar.
• If you are more or less stuck with your current investments and housing assets, reassess your spending patterns, because like it or not, your standard of living is now lower thanks to the weak dollar.

Off You Go or There You Stay

Of course, your choice of a retirement destination country involves much more than mere dollars and cents considerations. Perhaps you are fluent in Croatian and really have to be in Croatia. At the end of the day, all of us have to make these big decisions based on our own needs, desires, and capabilities, financial and otherwise.

To learn more about the weakening dollar, check out these recent articles:

• Businessweek: Bush's Worrisome Weak-Dollar Policy
• The Street: Funds for a Dollar Dip