How to Avoid Losing Money to Currency Fluctuations: A Guide for Expats

The complications that can come with issues like-border tax planning, managing investments abroad, and protecting wealth against currency fluctuations can be practically endless. And because every expats specific path is different, wealth management for expats is far from a one-size-fits-all proposition.

Retirement adds another layer of confusion, particularly when it comes to ensuring that your income and savings maintain their value across different currencies.

This is one of the biggest risks, which is why currency flexibility is a cornerstone of effective wealth management for expats in retirement, helping to mitigate risks and optimise financial security.

In this article, we take a look at the three pillars of wealth management for expats —  currency flexibility, cross-border tax planning and a global approach to investments.

Why currency flexibility matters in retirement

For expats, retirement income often comes from multiple sources, such as pensions, rental properties, or investment portfolios, which may be spread across the world and denominated in different currencies.

Without proper currency management, fluctuations in exchange rates could erode the value of your income and savings, significantly impacting your retirement lifestyle. Here are some of the specific reasons why currency flexibility is so important for retired expats:

Protecting against currency fluctuations

Currency values can fluctuate dramatically due to geopolitical events, economic policies, or market conditions. For example, if you’re an expat living in the UK but receiving a pension in US dollars, a weakening dollar could reduce your purchasing power in pounds. That’s an extra risk that no one needs.

Currency flexibility allows you to mitigate this risk by holding assets in multiple currencies or converting funds strategically when rates are favourable.

Maintaining purchasing power

Inflation affects currencies differently across regions. Diversifying your holdings across stable currencies, such as the US dollar, euro, or Swiss franc, can help preserve your purchasing power. This approach is particularly valuable if you plan to split your retirement between countries or regularly travel abroad.

Managing currency risk for investments

Expats often hold investment portfolios that include global assets. Currency movements can impact the returns on these investments, either positively or negatively. A positive return on an investment could be totally wiped out if the currency moves in the opposite direction.

By incorporating currency flexibility into your portfolio strategy, you can hedge against adverse movements and take advantage of opportunities in global markets.

Integrating currency flexibility into your retirement plan

So, there are some very good reasons why expats should prioritise currency flexibility in their retirement plans. Next, let’s take a look at how this can be implemented on a practical level.

Multi-currency accounts

Opening a multi-currency offshore account can simplify managing income streams in different currencies. These accounts allow you to hold, transfer, and convert currencies without excessive fees, providing flexibility to respond to exchange rate changes.

Currency-hedged investments

Consider including currency-hedged funds or ETFs in your portfolio. These investments minimise the impact of currency fluctuations on returns, making them ideal for retirees with global assets.

Strategic currency diversification

Diversify your savings and investments across a mix of currencies, prioritising those linked to stable economies. For example, holding a portion of your wealth in US dollars, euros, or British pounds can provide a buffer against volatility in emerging market currencies.

Cross-border tax planning for retirees

But while currency flexibility is a major component of wealth management for expats, it’s only one part of the equation. As an expat retiree, cross-border tax planning is essential to ensure your income and investments are structured efficiently.

Here are some of the issues you should be aware of when it comes to cross-border tax planning.

Tax treaties

Many countries have tax treaties in place to avoid double taxation. These agreements determine how your income is taxed, whether it comes from pensions, investments, or rental properties. Understanding these treaties can help you minimise your tax liabilities, and help guide your investment holding structure both pre and post-retirement.

Foreign tax credits

If you’re taxed on the same income in two jurisdictions, foreign tax credits may allow you to offset one tax liability against another. This is particularly useful for expats with global income streams.

In most cases you will have to claim these tax credits back in a tax assessment, so understanding what you are eligible before is important.

Professional advice

The reality is that very few expats can or should manage their own tax affairs. Cross-border tax laws are highly complex, vary widely by country and require detailed and specific knowledge to navigate effectively.

Working with an adviser who specialises in expat tax planning can help you navigate these challenges and ensure compliance. In many cases, the costs of engaging a professional can be outweighed by the improved tax position you gain from taking their advice.

Investment opportunities for expats in retirement

Lastly, a global approach to investment can give expats an edge when it comes to generating long-term returns. While anyone can invest in a global managed fund or ETF, having a foot in the country in questions can provide a significant advantage, particularly for hard assets like real estate.

However, this global approach also comes with risk such as currency risk that need to be managed effectively. Asset types that many expats look to hold in their portfolios include:

Real Estate

Property investments can provide a steady income stream, but they are heavily influenced by local currency values. For instance, rental income earned in a weaker currency could lose value when converted to a stronger currency. Diversifying property holdings across regions can mitigate this risk.

Expats can have an advantage in this space due to their local knowledge of countries they have spent time in, which can’t be replicated by investors who don’t understand the culture or investment opportunity.

Global stocks and bonds

Investing in international equities and fixed-income securities offers exposure to high-growth markets and stable returns. Again, while anyone can invest in most markets around the world, an understanding of the local market can provide additional benefits to investors.

Not only that, but some tax benefits such as tax input credits, may only be available to resident investors. Currency hedging strategies can be used to minimise the impact of exchange rate fluctuations on these investments.

Alternative investments

Assets like gold, commodities, and private equity can provide a hedge against inflation and currency risk. These investments are less correlated with traditional markets, making them a valuable addition to a diversified portfolio.

Make the most of a global retirement with effective expat wealth management

Currency flexibility, tax efficiency, and investment diversification are key pillars of wealth management for expats. But achieving these goals requires a tailored approach based on your unique financial situation and retirement plans.

At Hoxton Wealth, we specialise in helping with of cross-border wealth management. Whether you’re looking to protect your income from currency fluctuations, optimise your tax strategy, or explore global investment opportunities, our advisers are here to guide you every step of the way.

Retirement is a time to enjoy the fruits of your labour, not worry about currency risks or tax complications. Contact us today to learn how we can help you build a comprehensive expat retirement plan tailored to your needs.