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Letter from Latvia
International teachers Diana and Ken Knox Wolfe are building a nest egg while traveling the world
March 4, 2004: 10:27 AM EST
By Sarah Max, CNN/Money staff writer

BEND, Ore. (CNN/Money) Diana and Ken Knox Wolfe kicked off their around-the-world adventure nearly a decade ago when they took their first teaching jobs abroad.

The couple met while studying education at Kutztown University in Pennsylvania where Diana, 32, was an undergraduate and Ken, 38, was working toward his Masters degree. "We graduated on a Saturday, got married that Sunday and left the country a few weeks later," Diana recalled.

Diana and Ken Knox Wolfe  
Diana and Ken Knox Wolfe

After two years teaching at an American school in Nicaragua, the couple spent a three-year stint at a bilingual school in Kuwait. Then they moved to Latvia, where they've been teaching at The International School of Latvia in Riga for the past five years.

In July, they'll be moving again, this time to Qatar, a tiny, oil-rich country adjacent to Saudi Arabia, best known by Americans as command central for the war in Iraq.

"Originally we thought we'd work abroad for five to ten years," said Diana, who teaches high school English to the children of diplomats, foreign executives and families who want their children to attend English-speaking schools. Ken teaches fifth grade.

"Now it looks like we'll be staying overseas longer," she said.

Life without taxes

In many respects, Diana, and Ken have an ideal situation. They pay almost no taxes, receive free housing from the schools, never worry about health insurance and have about 165 days of vacation every year.

Like most expatriates, Diana and Ken don't pay U.S. taxes on earned income of less than $80,000 per person. In other words, not a single penny of the couple's $68,000 combined income, which includes annual bonuses, is taxed. As long as they stay in Latvia for no more than five years, said Diana, they aren't required to pay taxes in Latvia either.

"We do have to pay taxes on investment gains," said Diana, explaining that investment income is not sheltered. "But it ends up being a very small amount since we turn up in the lowest tax bracket."

When the couple moves to Qatar, their combined income will jump to $83,000 a year. On top of that, they'll accrue a $7,000 bonus for every year they're with the school.

"There's a rough correlation between how many people want to move to a country and how much they'll pay you," noted Diana. "Salaries in Paris aren't nearly as good."

Because health insurance is paid in full, premiums, deductibles and co-payments are costs Diana and Ken don't worry about. They also receive free rent and an annual stipend for flying back home.

"All of that it makes a huge difference in your lifestyle," said Diana, adding that she and Ken usually work no more than 200 days a year.

The downside of being an expat

Being an expat does come with some issues.

First of all, the couple is paid in dollars, which makes exchange rates particularly important. And the recent slide in the dollar has been particularly costly. "Everything we buy here is costing us 25 percent more than it did six months ago," said Diana.

And while the cost of living in Latvia is generally lower than it is in America, Diana and Ken do have to pay more for certain goods and services. "I pay more than a dollar a minute to call home to my mother," said Diana.

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In addition, unlike most of the "Millionaires in the Making" we've recently profiled, Diana and Ken have not been able to take advantage of rising home values in the United States. "We're developing a strong urge to own a piece of property, but that's not realistic at the moment," said Diana.

Finally, the couple receives nothing in the way of a pension or defined-benefits retirement plan.

International nest egg

Ken and Diana started saving monthly as soon as they moved Nicaragua, though much of their income, which was only $30,000 combined, was eaten up by student loan payments and the expense of moving from Nicaragua to Kuwait.

"When we graduated, we had $41,000 in student loans," said Diana. "We paid off our loans two years ago and now have no debt at all."

With student loans behind them, the couple saves between 20 and 25 percent of their income, or about $12,000 to $16,000 a year.

Most of that savings goes directly to a portfolio of taxable mutual funds, which is now worth about $109,000. Though the couple generally avoids buying individual stock, they have $5,500 in Berkshire Hathaway (BRK.B: Research, Estimates) and $2,000 in Columbia Sportswear (COLM: Research, Estimates) stock. Their cash savings is about $7,000, but they plan to increase that amount going forward.

According to Andrew Martin, manager of the tax services group for Fiducial, Diana and Ken should consider contributing the maximum $3,000 each to a Roth IRA, where their savings will grow tax-free. "Once they are eligible to take the money out they won't pay taxes on the earnings," said Martin.

Assuming they continue to save 20 to 25 percent of their income, their annual savings will increase to about $17,000 to $21,000 a year when they move to Qatar. If they put $6,000 of that in a Roth IRA, invest their bonuses and earn an average return of 10 percent on their investments, Diana and Ken's savings could reach seven figures in about 15 years.

Depending on where in the world they want to retire, a million-dollar nest egg could be more than enough to keep this well-traveled couple comfortable.  Top of page

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