Investment income -US or Ecuador?

During our countdown to moving to Ecuador, Hubby and I have discussed a number of different methods of “investing” with regard to our impending residency visa.

Since we are not yet in our 60’s, we are not yet social security age, and we will be existing on our investments: IRA’s, 401K’s that will become IRA’s after our retirement, an annuity (that we started before 401k’s were the “pension” of most employers) and a couple of small (tiny) pensions that we will be able to receive in our mid 60’s. We have calculated that we can live quite nicely on the investment income this “portfolio” will be generating – and even if we dip into some of the principal, we’ll be alright.

Then we have our house, which will be paid off by next summer. We can rent it out (rentals are in demand in our area) or we can sell it (sales prices are not bad, but not where they were a few years ago).  Both options will either give us $$ for investment or $$ for income.

We have decided that we do not want to purchase land or a home for at least the first year or 2 that we are living in Ecuador. We don’t want to make a snap purchase, and we aren’t sure yet exactly where we want to be permanently. We want to “test drive” the neighborhood and even the building, first.

For a residency visa, we must show proof of either a monthly income ($900 for one person plus one dependent) or we must invest $25,500 ($25,000 for one person plus $500 for one dependent) in an approved Ecuadorian bank, with a CD deposit for a minimum of 3 years.

CD’s in Ecuador are making fabulous interest, anywhere from 8% to 10.5%, depending on where you invest the cash.  Certainly much more attractive than the puny 1 or 2% paid here in Texas.  However, in the years that we have been coming to Ecuador, banks have been known to crash, default, go belly up, whatever it was called at the time – but it meant that investors’ money was lost.  Ecuador’s government has now “guaranteed” deposits up to $25,000 so I’m feeling a bit better about investments in Ecuador banks, but still. The memory lingers, particularly when you hear stories recently about runs on banks simply because of a “rumor” that may or may not have been true.

Our latest thoughts have run to investing in an immediate annuity. I happen to be an insurance agent, and while I have never sold any of these, I am familiar with how they work. And I could sell it to my hubby myself, thereby keeping the commission in the family.  I googled “immediate annuity paying $1000 a month” and was directed to http://www.ImmediateAnnuities.com where I input  a few details about hubby….with my desired payout and it gave me many options.

For an investment of $53,440, I can buy a 5 year annuity that will guarantee a payout of $900 per month for 5 years, for a total of $54,000.  Or invest $100,559 to receive the same payout of $900 monthly for 10 years. Of course, your investment MAY pay out better, depending on the underlying company’s investments and they type of vehicle you purchase. Don’t forget that I would also get a nice commission on this sale.

Or we can invest in a three year CD that pays out at least 8% annually…$25,500.  That’s $2040 per year that the CD will earn in interest, which of course can be withdrawn to be spent.

What to do, what to choose. Anybody want to weigh in on suggestions for us?

Deciding on our investment choices….

Happy Investing!

 

 

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7 responses to “Investment income -US or Ecuador?

  1. The big question is whether you will invest in order to receive income, which is necessary to support your life or whether you have other sources of income. If the latter, I would lean towards capital preservation. With an annuity, you get the income, which ceases after 5 years and exhausts your capital, whereas a CD gives you a lower income, but you get your capital, less inflation adjustment, at the end of the term.

    Before you decide, I suggest you look at the government and corporate bond market. The Ecuadorian government issues bonds, which will pay an annual coupon. If the government guarantees bank deposits, the government is less likely to default – I know it happened once in the past, but it learnt its lesson. Bonds issued by Ecuadorian corporations would probably pay higher interest. Look for investment grade bonds and you get interest, money is safe and capital is returned at end, plus, if there is sufficient liquidity, you may be able to trade in and out of the bonds. Here are some links related to govt bonds
    http://www.bloomberg.com/news/2012-05-16/ecuador-bond-yields-jump-most-since-january-on-oil-quito-mover.html

    http://www.bloomberg.com/news/2012-07-09/ecuador-working-hard-to-return-to-debt-markets-delgado-says.html

    Hope this helps

    • Great suggestion. How does one buy Ecuadorian bonds? Can they be purchased while still in the United States?

      • Any company which can arrange stock trades should be able to do bond trades. Alternatively refer to JP Morgan Chase. They track EM including Ecuadorian bonds. However, you should prepare to be warned that they are risky, due to default in 2008/9..

        I have a question for you about forestry in ecuador. How can I post it?

  2. This is a fairly old article, so I don’t know if or how your plans have changed. Just now ran accoss it. Do you know how Ecuador treats taxes on capital gains and interest income when made within Ecuador? I agree with your idea of renting the Texas house and trading that for the smaller rent you will probably be paying in Ecuador. You should be able to get a 6% return on the rental income from the house if it is in good condition. And once sold, you have no opportunity to enjoy the appreciation in value. So selling is probably best postponed until you decide to buy in Ecuador. As far as the annuity, I’m not a big fan of it depending on how tied up the $100K investment will be. That’s a matter for a good financial advisor. Government and corporate bonds are should be available at major banks with brokerage offices. Ecuador is planning a major bond auction late 2013 and 2014. For stocks, you need to talk to a broker at someplace like Banco Proamerica.

    • Yes, actually, our plans DID change since I wrote that post. We decided we didn’t want the hassle of renting from far away — so we fixed up the house, put it on the market and it sold within a month. THen we had about 4 weeks to clean it out and get our stuff packed! As for the annuity, we found out that the ‘pensioner’ income must be ‘in perpetuity’, aka, a pension or social security. Obviously, an annuity doesn’t comply with that rule, so we did an investment CD for the visa here in Ecuador. Banco Pichincha, @6.5% annually for a 2 year CD, then we will have to renew it for one more year to keep our residency visa. We are glad that we sold the house, the CD is insured at Banco Pichincha, and our investment guy in the states is handling the proceeds from our home. We feel very free and easy, with no debt, few bills to pay, and if we decide to move from Cuenca, no ties to our rental here, even though we love it.

  3. What happens to your CD after the 3 years? Are you required to keep the CD for any additional time? OR, can you drop the CD when your Social Security kicks in?

    • After the 3 years, you must renew the CD and you must get something from the visa office, take it to the Banco Central, where they will replace the copy of the original CD with the copy of the NEW CD. Or, if you then have social security, you can go thru the entire process of redoing the visa to be a ‘pensioners’ visa, instead of an investment visa. OR you can apply to become a citizen of Ecuador, and then you don’t have to have a CD or a pensioner’s visa.

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