When you move abroad, there’s plenty to think about — visas, housing, healthcare, taxes, even where to buy your morning coffee.
But there’s one crucial aspect of your financial life that often gets overlooked: currency risk.
For US expatriates, especially those holding retirement assets in US dollars, exchange rate fluctuations can have a direct impact on spending power in retirement. If you’re earning, saving, or investing in one currency but plan to spend in another, you may be adding unnecessary risk to your long-term plan.
At Blacktower Financial Management, we’ve worked with expatriates for nearly four decades, and we’ve seen how unaddressed currency risk can erode wealth — sometimes faster than poor investment performance. Let’s explore why this matters, and how to plan more effectively.
What Is Currency Risk?
Currency risk — also known as exchange rate risk — is the possibility that changes in currency values will impact the worth of your assets, income, or spending.
For example, if you’ve retired to the UK but your pension and savings are denominated in US dollars, you face a potential mismatch. If the dollar weakens against the pound, your retirement income in sterling terms falls, even if your investments have performed well.
Currency exchange rates can shift due to:
- Global economic conditions
- Political events or instability
- Changes in interest rates
- Market speculation
These movements aren’t always small or predictable — they can be sharp and sudden, meaning your retirement plan needs to account for them.
The Common Expats’ Oversight
If you lived your whole life in the US, the idea of holding your retirement assets in euros or yen might seem odd. You’d naturally want them in dollars to match your spending currency.
Yet many US expats end up doing the opposite without thinking about it — keeping pensions, IRAs, or investment accounts in USD even after moving permanently overseas.
Why?
- They don’t want to convert at an unfavourable rate.
- The timing never feels right.
- They assume it doesn’t matter as long as the investments perform.
But ignoring currency risk means stacking one layer of uncertainty on top of the investment risk you’re already taking. Hoping that both will work in your favour isn’t a strategy — it’s a gamble.
Why Matching Currency to Spending Makes Sense
The simplest rule is:
Hold your retirement assets in the currency (or currencies) you plan to spend in.
If you plan to live and retire in the UK, holding a pension solely in US dollars could be risky. Even if your portfolio grows by 10%, a 10% drop in the dollar against sterling could wipe out your gains in local spending power.
The same applies in reverse — a strengthening dollar might work in your favour, but it’s unpredictable. Long-term planning should aim to protect your lifestyle, not leave it to chance.
That said, the right solution depends on:
- Your residency plans
- Tax implications in both countries
- Any ongoing US obligations (loans, property, etc.)
- Your risk tolerance and investment horizon
When Currency Moves, So Does Your Wealth
Currency risk isn’t theoretical — it impacts real-life budgets.
For instance, in recent months, the US dollar has seen significant movements. For US expats holding the bulk of their wealth in USD, this meant that converting savings into their local currency could yield less spending power than just six months earlier.
If you’re drawing on retirement funds, the effect can be magnified. Poor investment returns combined with a weaker dollar can shrink your portfolio faster than expected. This “double hit” can force lifestyle adjustments or earlier-than-planned asset sales.
Managing the Hidden Costs
Even small exchange rate changes add up over time. If you move money regularly between countries — for example, sending funds back to the US or paying for expenses abroad — shifts in the rate can gradually chip away at your wealth.
Other hidden factors include:
- Tax reporting: Currency gains or losses may be taxable in the US, adding complexity to your IRS filings.
- Budget forecasting: Volatility makes it harder to plan for future costs, from healthcare to travel.
- Debt servicing: If you have ongoing US obligations (like mortgage or property taxes), adverse currency movements can increase the cost in your local currency.
Strategies to Reduce Currency Risk
Managing currency risk is not about eliminating it entirely — that’s rarely possible. Instead, the goal is to align your assets with your future spending needs. Approaches might include:
- Currency Matching: Gradually shifting part of your portfolio into the currency you’ll spend in during retirement.
- Diversification Across Currencies: Holding assets in more than one currency to reduce the impact of movements in any single exchange rate.
- Staggered Conversions: Converting in stages rather than all at once to average out rate fluctuations.
- Use of Local Investment Wrappers: For example, in the UK, certain pension and investment structures can be denominated in sterling, removing USD exposure for day-to-day spending.
The best approach will depend on your personal goals, tax position, and investment strategy — which is why professional advice is critical.
The Role of Cross-Border Financial Advice
Domestic US advisers may be skilled in building portfolios — but if they don’t understand the tax and currency landscape in your new country, they could unintentionally leave gaps in your plan.
At Blacktower, our cross-border professionals work across multiple jurisdictions to help make sure: :
- Your investments are structured for tax efficiency in both countries.
- Your currency exposure matches your retirement spending plans.
- Your estate and succession planning reflects your residency status.
We don’t provide tax advice directly, but we coordinate with trusted tax professionals in your jurisdiction, so every part of your financial plan works together.
Protecting Your Spending Power in Retirement
For US expats, currency risk can be as damaging as market risk — yet it’s often easier to manage with the right approach. Whether you’re still building your retirement fund or already drawing from it, aligning your asset currency with your lifestyle currency is one of the most effective ways to protect your standard of living.
If you’ve recently moved abroad — or plan to — now is the time to review:
- What currency your assets are held in.
- Where you’ll actually be spending in retirement.
- How tax rules in both countries affect currency conversions.
Take the Next Step
Since 1986, Blacktower Financial Management has been helping expatriates safeguard and grow their wealth. We understand the challenges of living between currencies and the importance of protecting your spending power over the long term.
📞 Contact us today to arrange a confidential consultation with one of our international advisers and start building a currency-conscious retirement strategy.
Disclaimer:
This article is for information purposes only. Investment advice and investment advisory services offered and provided through Blacktower Financial Management US, LLC. This communication is for informational purposes only based on our understanding of current legislation and practices which are subject to change and are not intended to constitute, and should not be construed as, investment advice, tax advice, tax recommendations, investment recommendations or investment research. You should seek advice from a professional before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
Investment advice and investment advisory services offered and provided through Blacktower Financial Management US, LLC. This communication is for informational purposes only based on our understanding of current legislation and practices which are subject to change and are not intended to constitute, and should not be construed as, investment advice, tax advice, tax recommendations, investment recommendations or investment research. You should seek advice from a professional before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.