Questions: Swiss Annuities, Vanuatu, Retirement, German Citizenship

July 23, 2010
Krakow, Poland

Krakow is always beautiful in the summertime. It has one of the most vibrant city-centers in Europe… and as the economy is fairly healthy here in Poland, there are always a lot of people out in the streets enjoying themselves.

I’ll tell you more about Krakow next week; for now, on to this week’s questions.

First, Heather asks, “Simon, the article your wrote about currencies racing to the bottom is dead on.  I am trying to protect my retirement savings against depreciating major currencies, and I’ve been looking at using a Swiss annuity in my IRA. Have you heard much about this approach?”

Sure; a Swiss annuity is a fixed-income instrument that provides a low, fixed rate of interest, plus profit-sharing dividends. It is not subject to Swiss withholding tax, income tax, or capital gains tax, and in your IRA it would not necessarily be subject to US income tax either.

While a Swiss annuity may accomplish your goal of currency diversification, though, there are disadvantages; the rate of return can be fairly low, and there are often stiff penalties if you want to exit the annuity and redeploy your capital elsewhere.

For most people, a Swiss annuity makes a lot of sense if they’re looking to receive guaranteed income, or if they need to protect significant assets within the Swiss system through a legitimate, accepted tax shelter.

If your primary goal is currency diversification, you may want to consider an Open Opportunity IRA structure. This allows you to maintain 100% control over your retirement funds; in this case, you could keep your retirement funds in cash, diversifying across any currency of your choosing.

One approach would be to open an account at Everbank on behalf of the LLC owned by your Open Opportunity IRA; Everbank can denominate deposits in 20-different currencies, including the Swiss franc, Australian dollar, Brazilian real, Chinese renminbi, and Indian rupee.

With this approach, you can achieve currency diversification while maintaining liquidity of your retirement funds. If, in the future, you decide to plant a flag with your retirement funds by buying foreign property, you will have the liquidity and purchasing power to do so.

I really think that taking control of your retirement funds and planting this flag is a financial no-brainer. If you haven’t yet seen Terry Coxon’s book on the subject, Unleash Your IRA, I’d encourage you to check it out to learn exactly how to do this.

Next, Tim asks, “Simon, I’m an Australian citizen currently looking at Vanuatu as both a place to live and for planting tax flags; is this a good place for me to consider? Thanks for the great letter.”

Australians and Kiwis should definitely consider Vanuatu. As a small island nation fairly close to Australia’s eastern coast, you’ll have close proximity to home without having to deal with 45%+ Aussie tax rates.  In Vanuatu, there are no taxes on corporate profits, wage income, capital gains, or dividend income.

Planting a tax residency flag there makes a lot of sense, assuming you don’t have Australian-sourced income. Just be careful how much time you spend in Australia going forward; more than six months out of the year will pull you back into their tax net regardless of where you earn your income.

Next, Craig asks, “Simon, can retired members of the US military who renounce their citizenship still receive their retirement pension, or is it forfeited?”

In the US military, retirement is just one kind of personnel status, just like being active duty or reserve. Though no longer on active duty, retirees can technically be called up to serve again should the Defense Department deem this necessary.

As such, retirement pay is the compensation given to retirees for still being carried on the military’s personnel roster. This pay is contingent upon their eligibility to be recalled to active duty, as unlikely as that may be.

Upon renouncing US citizenship, a retiree forfeits his/her eligibility to serve in the US military, therefore the individual would no longer be entitled to receive retirement pay.  Note, renunciation would not affect disability pay.

For more information, read DoD Financial Management Regulation Volume 7B, Chapter 6.

Lastly, in response to a recent note I wrote about German citizenship, Marie was kind enough to provide some of her own experience about how she obtained citizenship:

“Simon, I was granted German citizenship from ancestry (my grandfather). There are major restrictions– the gender of the last two generations must be the same.  In my case, it was a German male, his daughter (my mother), and then me (female). If I had a brother he would not be entitled. Plus I had to be single, born after 1975, and never served in another nation’s military.”

Strange indeed; ancestry programs can be excellent, cost-effective ways of obtaining a tier-1 second passport. Unfortunately, it can be very challenging because the rules are rarely clear or logical. The same thing goes for ancestry citizenship here in Poland, which I shall tell you about at a later date.

Have a great weekend

About the Author

Simon Black is an international investor, entrepreneur, and founder of Sovereign Man. His free daily e-letter Notes from the Field is about using the experiences from his life and travels to help you achieve more freedom, make more money, keep more of it, and protect it all from bankrupt governments.