Dateline: Budapest, Hungary

Many of the things we talk about here are contrarian in nature… they go against the grain.

In fact, the very idea of being a nomad – or at least making your wealth nomadic – is so rare in much of the western world that many of our private club Members and consulting clients tell me they joined just because they wanted to meet other people who share their views.

Despite everyone knowing that the United States government is flat broke with $17 trillion in current liabilities, somehow no one believes that the government will ever default on payments to future retirees under Social Security, or for medical care through Medicare.

While I occasionally run into an offshore services provider or sane financial sage who advises clients to max out their IRA or other retirement account for whatever reason, most smart advisors I know agree with me:

With a few exceptions, it’s almost never a good idea to fund an IRA, 401(k), or whatever other government tax-deferred retirement scheme you’re eligible for.

The proof is in the pudding, as governments around the world have been actively sticking their hand into the cookie jar that is private retirement cash, helping themselves to their own citizens’ golden year savings.

It’s sociopathic when you think about it; you work hard your entire life to save for the day you’ll retire. You stay in good health so you can live to enjoy it.

And then, one day, you wake up to realize that it’s gone. Of course, we’ve seen this sort of thing with banking in places like Cyprus. However, for some reason the average pensioner believes that their government would never touch their nest egg.

This ignores one simple principle: government functions on dependance. The more dependent to the government you are, the happier they are. As we’ve discussed before, the same high-tax countries that are prone to offer tax-advantaged retirement accounts are the same ones that are up a creek and will be all too happy to use your savings as their lifeboat when the boat is almost sunk.

In exchange, they may give you an IOU, or some annuity interest in toxic government debt. If you still believe “it can’t happen here”, here are seven examples of where it DID happen.

1. Ireland

In March 2009, the Irish government seized €4 billion from its Pension Reserve fund; the money was used to bail out the banks. Eighteen months later in November 2010, what was left in the kitty – roughly €2.5 billion – was seized to support a national bailout.

Ireland isn’t some faraway third world hellhole. It’s the place in Europe that, more than any other, knows a US person when it sees one. Not only is Ireland one of the few bastions of relative sanity in western Europe on tax and spending issues, but it’s a place that is highly familiar and comfortable to anyone in the west. And even they couldn’t help themselves.

2. Hungary

Four years ago in December 2010, the government here in Hungary told the citizens that they had a simple choice: send their private pension account money to the state to “help the country”, or be declared ineligible for a state pension.

In effect, the government said, “Give us your IRA or you won’t get anything from Social Security”. Considering employment taxes are insane here in Europe, the workers affected had already spent years or even decades mandatorily paying into a state-run system. The Hungarian government – some of the biggest thieves in Europe – told them that it didn’t matter, and took their money.

3. France

Ah, France. The place that thought a 75% tax rate on “rich” people was a great idea. They went so far as to elect a guy who campaigned on that very premise.

And in November 2010, the French Parliament earmarked €33 billion of money from FRR, the French National Reserve pension fund, to reduce short-term pension deficits. Politicians spend money, wind up broke, then “borrow” more of yours to cover it up. I suppose the French Parliament figured people wouldn’t notice for a while.

4. Italy

As with France, you wouldn’t expect much from a country that can’t be visited for a week without experiencing some form of government worker strike, would you? Unsurprisingly, Italian banks were ordered by the government to impose a 20% withholding tax on all inbound wire transfers in February 2014.

These deductions were an automatic way for the government to withhold income until the person receiving the wire transfer could demonstrate – guilty until proven innocent – that the money was not income. That applied equally to retirees and showed that Italians living in Italy could have capital controls imposed on foreign investments that remitted money to their Italian accounts. If only they had planted flags.

5. Bulgaria

One of the EU’s newest members, Bulgaria spent the first few days of 2011 transferring roughly $60 million from private retirement funds they had control over to their own state pension scheme. Their original attempt to grab $300 million failed, but in a country where pensioners get retirement checks in the low three figures each month, that’s a lot of money either way.

6. Poland

In the fall of 2013, Poland’s government declared that it would confiscate the bulk of private pension fund assets owned by private countries, many controlled by foreign companies such as PIMCO, Axa, Generali, ING, and Aviva. The government offered no compensation; they merely ordered these retirement assets transferred to the state.

As I reported last year from Poland, the government’s reasoning for this was simple: they claimed they wanted to pay off debt. In reality, they paid off debt merely to fluff up their balance sheets in order to borrow even more money than the debt they paid off. Slick accounting tricks from politicians are always fun when pensioners lose half of their savings in the process.

7. The European Union

Is the financial crisis over? Ask a politician and the answer is likely to be “no”. As we know, the government lets no tragedy go to waste, and according to European Union documents, the “ongoing financial crisis” requires government intervention in the form of potential asset confiscation.

In 2014, the EU commission asked their insurance agency to create legislation that would “mobilize” personal pension savings for long-term government financing. Again, keep your nest egg in your home country and the local authorities just might confiscate it. In this case, some 450 million people are potentially at risk.

It doesn’t take much to come up with a reason that at least half of the population will believe.

As more and more westerners become subsistence workers with zero savings, the idea of confiscating someone else’s money to solve a country’s budget disaster – the kind that might require austerity or cuts to social services those people like – is easy.

That is why I am such a big proponent of moving your IRA offshore. If you have a retirement account in the United States, the process is relatively easy and inexpensive, and the potentially higher returns from investing in a wider pool of assets can more than pay for any start-up costs. You can learn more about Offshoring your IRA here.

If you live outside of the United States, you may still have options. It all depends on the value of your account, how old you are, and your tax situation. If you need help, feel free to contact us.

Andrew Henderson
Last updated: May 21, 2020 at 4:15PM