Returning to the US after many years overseas isn’t for wimps! Many of us will return to an uncertain future and without owning a US home. We’ll have to decide where we can afford to live and what our lives will look like. Reverse culture shock is a real thing but so are reverse mortgages. We’ll try to stick to the financial side of things since that is the purpose of this website, but clearly returning Stateside after 10, 20 or even 30 years overseas isn’t for the faint of heart.
The American Dream
As a US expat missionary, I often scoff at the American Dream. I’ve learned to love several countries and cultures and do not consider the US and its “American Dream” to be the ideal for everyone. Still, a big, emotional part of the American Dream remains in my heart. After 20+ years overseas, I still have that sense that I need to own a home, built soundly upon American soil. When discussing the American Dream, Wikipedia says,
In the United States, home ownership is sometimes used as a proxy for achieving the promised prosperity; ownership has been a status symbol separating the middle classes from the poor.
In other words, many of us feel poor if we don’t own a home. We feel like we’re not prosperous or unsafe financially because we don’t own an American. That still resonates with me.
Prior generations were brought up believing in home ownership: Save up some money, get a thirty-year mortgage, pay it off before retirement, and enjoy the remainder of your life in financial freedom! I think it looked something like my graphic below (reading the 10-year spans from bottom up):
All in all, this was not a bad dream. It made a lot of sense in 1950 when, according to the US Center for Decease Control or CDC, the average American 65-year-old was expected to live to be almost 79. You pay off your home, you retire with a nice pension, you live pretty much as you lived before (spending a bit less on gas and clothing but throwing in a stereotypical round of golf or two), and you have achieved financial freedom for your remaining years.
The Modified American Dream
Oh, but times have changed! That corporate pension plan is gone, replaced by under-funded 401k and 403b plans. Since 2004, the average 65-year-old is expected to live at least 4 years longer than his or her predecessors. Many couples have at least one person who lives 30 or more years after that traditional 65-year retirement marker. The housing market has gone up, down and sideways. And Americans often expect larger homes, provide smaller down payments, get a later start, and may never pay off that home. Furthermore – and this is a big one – today’s homeowners may need some of that money back out of the home to continue living as they had before. The American Dream, in my opinion, has sort of modified in the all-important yellow section:
The home has become, for many retirees, a sort of bargaining chip. The hard-earned cash dutifully put into that mortgage for 30 or more years, is often used as a replacement for under-funded retirement accounts.
Even if we spend less than we earn (which is not a given anymore), we don’t save enough to provide for our needs (and wants) into our 90s, so the home is used as an asset. This modified American dream is not what a lot of people were planning for, but it still works for many who paid off their homes before retirement.
But what about the US expat who never owned a home in America?
The Expat American Dream: The Story of Hans and Morgana
Here’s a very common scenario. Morgana decides to spend a couple of summers on short-term teams abroad as she finishes up her college education. While feeding the poor or building a church building, Morgana meets Hans. Hans and Morgana love each other and what they’re doing overseas, so they raise a bit of money and move overseas for a year or two after their wedding.
Two years become four and six and eight. Their family of two grows to three then four. Their kids love the smells and tastes of their host country and so do Morgana and Hans. Without realizing it, they’ve made a home here.
But what happened to their American Dream? They’re happy renters or happy owners of a modest dwelling in their host country, but weren’t they supposed to buy some well-appointed US home at some point?
They suppress those feelings because life is good, their family is happy and their service is so very needed. Their bills are paid, they’re spending less than they earn, and they’re putting a couple of hundred dollars each month into some generic funds their organization set up for them for retirement and college. They’re living the Expat Dream.
Let’s imagine – by miracle – their two kids earn scholarships and spend down those college funds that Hans and Morgana had paid little attention to. (Friends, don’t forget what a big “miracle” this would be. This takes planning too!)
As the last child finishes graduate school and the first child is popping out delightful grandbabies, Morgana and Hans find themselves in their late 60s. They’ve slowed a bit, it has become harder to keep up their funding from the USA, they’ve trained many of the nationals to do the work they’ve been doing, and their organization requires them to retire by age 70 anyhow, so they make the move. They plan to continue traveling back to their host country a couple of times a year, but now is the season of serving as volunteers in the US and living near children and grandchildren.
My fellow expats, what I have described above is a truly blessed life. It’s a life that had an impact on the world and created deep, lasting relationships. As a missionary, I aspire to love the Lord, love others and be useful to God’s Kingdom. Hans and Morgana have done all of that. But there is a problem…
Returning to the USA without a home
This dear family skipped a step in the American Dream. Modified or not, the American Dream is based heavily on homeownership. You scrimp and save for 30+ years to buy a house that you hope to either live in throughout your retirement years or to sell in order to afford something smaller or assisted care or whatever the case may be. Home ownership was the financial linchpin of that model.
Homeownership isn’t vital
More and more people are rejecting homeownership as a necessary element of a financially successful life. They point out that in some areas of the US, it is cheaper to rent than to pay down a mortgage. They do the math on property taxes, upkeep, sales fees and so on and decide that it is not always worth it. They calculate that financially speaking a home is not a very good investment; the returns are unstable and generally very low. Business Insider concludes: “A hundred years of inflation-adjusted US housing prices suggest that a home increases only 0.1 percent in value per year on average.”
Home ownership is not a necessary cog in the successful financial life. People can and do reach Financial Freedom without ever buying a home. In fact, a conservative combination of stocks, bonds and savings accounts should easily grow your Mercy Mound at more than the 0.1 percent cited above.
Home ownership is great for a lot of reasons, but the dollars wrapped up in the home are not available for investing and saving and thus there is an “opportunity cost” in home ownership. Retiring without owning a home is fine, but…
This only works if you follow the plan
Yep, you’re way ahead of me. This lifestyle without homeownership only works if you follow something like the Vagabond Path: Earning a reasonable income, Saving sacrificially, Investing wisely and planning for this period of Retirement.
If Morgana and Hans never bought a US home but followed the Vagabond Path, they would almost certainly come out Financially Free! The house isn’t vital to the equation. They should be able to retire back to a modest lifestyle in the USA with enough money to live out their retirement and give with reckless generosity. They’ll be able to live near the grandkids, serve their US community and make service trips abroad as well. And they’ll be able to do all of that without needing the funds from donors and churches who are now supporting the next generation of expat servants.
But all of that can only happen if Hans and Morgana were working as hard at Earning and Saving as their American home-owning counterparts. It assumes that while that family was investing in their mortgage, repairs, and bills that Morgana and Hans were investing at least that much in their retirement accounts, savings accounts, taxable brokerage accounts, etc.
The math is pretty indisputable that those who don’t own a house generally should have more wealth upon retirement, but the research shows the opposite. Jamie Hopkins at Forbes reports that “those people with responsible mortgages increased their net worth on average by $20,000 over three years compared to only $15,000 for those who rented.” Well, if you spend your extra money instead of saving and investing it, your net worth won’t keep up with the homeowners!
Maryalene LaPonsie of US News quotes certified financial planner, Ken Moriaf, as emphasizing that self-discipline is vital if you aren’t a homeowner:
Buying a house is almost a forced savings plan…. If you’re renting, make sure you’re saving the difference.
No one knows what tomorrow’s financial markets will do or what tomorrow’s realty markets will do, but the averages from recent history suggest that the person following the Vagabond Path will do just fine.
The problem is, of course, that it only works if they are saving and investing as if they were paying all of those housing expenses. Instead of paying the lending bank, Hans and Morgana should be paying themselves. Instead of owning a brick and mortar asset at age 70, they will own well-diversified financial accounts.
But if they did not pay themselves? If they did not aggressively build their Mercy Mound, where will they live? Can they afford to retire? Will they be able to live near their grandkids or will they have to live in the cheapest, lowest-tax area of the USA just to get by? After 30+ years of service and relationships, will a shortage of money force them to move to a small town in a low-tax state where they know no one and have no connections for ministry and fun? Will they never see their host country again?
Most career missionaries and nonprofit workers skip US home-ownership. It feels wrong to some of us, but the plan will work. In fact, the plan will likely be more financially successful than if we had owned a home with that one important caveat: Have we sacrificially scrimped, saved, and invested just as hard as our home-owning counterparts scrimped, saved, and invested? That’s the only way this plan works!
So, the story of Hans and Morgana can end quite nicely, renting a modest home near their grandchildren, or it can end a bit sadly, with an isolated existence in a town they chose just because that’s all they could afford. The linchpin is not homeownership but financial stewardship.