The majority of American retirees that move to Mexico to enjoy their golden years survive entirely on retirement income originating from within the United States.
The most common source is from Uncle Sam in the form of Social Security benefits, but after that, mutual funds are high on the list of income streams for retirees. What many of those retirees don’t realize until it’s too late, is that moving south of the border may affect their ability to manage those mutual fund accounts.
Since I mentioned Social Security benefits, let me quickly address that first.
Good news! If you’re a U.S. citizen, moving to Mexico will NOT impact your ability to collect your Social Security payments. If you want more information, you can read this article about it later:
On the other hand, if you have U.S. based mutual funds, there is a strong possibility that the financial institution handling your mutual funds may block you from making any additional purchases or changes, effectively freezing your account.
The reason is because in order to do business with a foreign resident — even if that person is a U.S. citizen — the fund would have to be registered with the appropriate regulatory bodies in that foreign country, and be subject to their oversight and enforcement.
In layman’s terms, that means your fund isn’t allowed to do business with you now that you’re buying and selling stocks from your new home in Mexico.
According to an article from Thun Financial Advisors, many financial institutions in the U.S. have started to restrict or even close the mutual fund accounts of Americans living abroad. Some of the more notable institutions taking this action are Morgan Stanley, Fidelity, Merrill Lynch, Ameriprise, TIAA, Edward Jones, Wells Fargo, USAA, and UBS.
Whenever I tell an aspiring expat about this potential problem, the typical response is to ask me the following:
What If I Maintain a U.S. Mailing Address?
I can best answer this one by first sharing a story from real-life.
One of our friends is originally from Texas, but he’s lived in Mexico for the last few years. He maintains a mailing address in the U.S.; however, he no longer owns real property there.
About two years ago, he received a notice from the company handling his mutual funds – a very well known investment company – advising him that he could no longer make purchases through the fund. According to the notification, they determined that he was a foreign resident because he had been logging on repeatedly from a Mexican IP address over an extended period of time.
We know several American expats who use a VPN to hide their location when online for this very reason. But, tracking IP addresses is not the only way that these companies find out that a customer has moved abroad. Another popular investigative tool is social media.
That’s right. If you changed your place of residence on your Facebook profile to Cancun, Mexico, it won’t take Columbo to figure out you’ve moved away.
In case you’re wondering how our friend handled it, he flew back to the States and moved his money to a different type of account.
Let’s Wrap This Up
Not every investment company takes such a hard line approach to their U.S. customers living abroad. However, if you have money invested in a mutual fund, I recommend that you contact the investment company prior to moving to see if there will be any negative consequences.