How Currency Moves Can Reshape Your Retirement Portfolio

From “set-it-and-forget-it” to “FX matters now”

Look, the old playbook was simple: a U.S.-only 60/40, rebalance once a year, call it a day, and maybe argue about small-cap value at Thanksgiving. That worked when your portfolio, and your life, were mostly dollar-denominated. But retirement planning in 2025 isn’t living in that world anymore. Most portfolios, even the autopilot ones, touch foreign markets. That means currencies sneak into your returns, your withdrawal math, and occassionally your taxes. Not to be dramatic, but FX isn’t a niche trader toy, it’s now part of the basic toolkit.

Here’s the thing: modern default products already put you there. Big target-date funds and low-cost ETFs routinely hold international assets. Industry fact sheets this year show most large target-date series allocate roughly 35-45% of their equity sleeves to non-U.S. stocks, and many include 20-30% non-U.S. bonds (bond exposure is often hedged, equity usually isn’t). Global market math backs that up: non-U.S. stocks still make up about 40-45% of global equity market cap in 2025, give or take a percent depending on the day. So even if you never intentionally picked “FX exposure,” you probably have it anyway.

Currency moves don’t just change what your statement shows, they change what you can actually spend. A quick reality check from recent markets: the dollar index (DXY) rose about +8% in 2022 and then chopped around; USD/JPY touched the 160 area earlier this year (a level we hadn’t seen in decades), while EUR/USD has spent most of 2025 bouncing roughly in the 1.06-1.12 range. Those aren’t trivia facts; they’re a reminder that a 10% dollar move can add or subtract close to 10% on your unhedged foreign equity returns over the same period. I’m oversimplifying, local market volatility and dividends matter, but the directional effect is exactly that blunt.

Why it matters for retirees now:

• Reported returns: Your international fund might be up 8% locally but only 3% in dollars if the greenback strengthened. Or the opposite when the dollar weakens.
• Income and withdrawals: Foreign dividends translated back to USD can swing with FX, which means your “4% rule” cashflow can wiggle more than you expect in some years.
• Purchasing power: If you spend part of the year abroad, help the kids with tuition overseas, or just buy a lot of imported goods, currency levels affect real-life prices.
• Taxes: FX changes can alter the USD amount of foreign dividends and realized gains. You still get the foreign tax credit where applicable, but the timing and magnitude in dollars move with FX, which can nudge bracket thresholds or NIIT exposure.

FX used to be background noise for U.S.-only investors; now it’s the bassline under a lot of retirement portfolios.

So, what will you get from this piece? A straightforward frame for when FX risk helps you and when it hurts, simple rules of thumb for hedging (and when not to bother), and a clear sense of how currency moves flow through to returns, income, and taxes. We’ll be practical. We’ll use 2025-relevant examples, because the world we’re all investing in today features a strong-ish U.S. dollar, a historically weak yen, and target-date funds that, by design, bring global currencies into your retirement whether you asked for them or not. And if I get a bit too nerdy at moments, actually, let me rephrase that, I’ll keep it anchored to decisions you can make on Monday morning.

Anyway, if your plan used to be “ignore FX,” the update for 2025 is: don’t ignore it, keep it simple, and pick your spots. You don’t need to become a currency trader. You just need to know where the FX risk lives in your portfolio and what, if anything, you want to do about it.

Where the currency risk actually hides in your portfolio

Here’s the thing: you don’t need to buy yen to have yen risk. FX sneaks in through side doors. It’s in your index funds, your dividends, your bond income, even your winter-in-Portugal budget. And in 2025, with the dollar still strong-ish, the yen hanging around multi-decade lows (the dollar touched about ¥160 last year and has been hovering near ¥150-155 at times this year), these exposures matter.

• International stock ETFs: If your fund is unhedged (most broad international equity ETFs are), foreign-currency moves ride shotgun with your returns. A quick rule of thumb: a 1% move in the currency versus the dollar adds or subtracts roughly 1% from your USD return, all else equal. Example: if the euro gains 5% against the dollar, an unhedged Europe ETF typically gets an extra ~5% FX tailwind. Hedged share classes mute that, expect equity returns closer to local-stock moves with much lower FX noise. You’ll often see “Hedged” or “USD-hedged” in the name.
• U.S. multinationals: You can hold only S&P 500 and still have FX risk. S&P Dow Jones Indices has shown U.S. large-caps derive roughly ~40% of revenue from outside the U.S. (it wiggles by year, but ballpark holds). When the dollar strengthens, those foreign sales translate into fewer dollars, denting reported earnings; a weaker dollar does the opposite. That’s why companies with big overseas footprints talk about “FX headwinds/tailwinds” every quarter.
• International bonds: Most high-quality global bond funds hedge back to USD. Vanguard’s Total International Bond (BNDX) is a good example, it targets near-100% currency hedging so you capture foreign yields without FX whipsaw. But emerging-markets local-currency bond funds usually don’t hedge; they intentionally hold FX exposure. That can help when local currencies strengthen, but it can swamp the yield when they weaken. Speaking of which, the dollar’s resilience this year has been a headwind for several EM local baskets despite decent local yields.
• Dividends: Foreign payouts vary with FX before they ever hit your account. If a Japanese company keeps its dividend flat in yen while USD/JPY moves from 145 to 155, your USD dividend falls about ~6%. Then there’s withholding tax: many countries skim ~15% at the source (treaty rates), while some like Switzerland start at 35% and you (or the fund) reclaim the excess with paperwork. You may recieve a Foreign Tax Credit on your 1099 to offset some of this, but it’s not uniform across accounts, IRAs generally can’t use the credit.
• Commodities and gold: Quoted in dollars, yes, but FX still bites non-USD buyers and producers. A fun (well, nerd-fun) example: gold priced in yen hit repeated record highs even in months when USD gold was flat, simply because the yen weakened. If you’re a U.S. investor buying a global commodity producer with costs in one currency and sales in another, FX can swing margins more than the commodity move itself.
• Lifestyle spend: Retirees who winter abroad have real FX cash-flow risk. If your income is in dollars and your rent is in euros, a shift from 1.07 to 1.12 EUR/USD raises your euro rent in dollar terms by about 4.7%. Mexico has been a surprise here: the peso has been relatively strong since 2023, which made day-to-day costs climb for U.S. snowbirds even when local inflation cooled. Anyway, this isn’t just a spreadsheet thing, it’s your grocery bill.

Look, I get it, this might be getting complicated. The key is locating the big levers. Unhedged international equities? You’ve got FX. U.S. multinationals? Indirect FX via earnings translation. Global core bonds? Usually hedged. EM local bonds? Usually not. Dividends? FX + withholding. Travel spend? Pure FX. Once you see it, you can pick your spots. And I’ll admit, I get a little too excited when a clean hedge saves a retiree from a nasty rent surprise, because that’s a win you actually feel on Monday morning.

Why 2025’s FX tape matters for retirees

Look, this year isn’t quiet. Markets are still pricing Fed rate cuts for late 2025 after holding tight for most of the summer, which is a shift from last year’s “higher for longer” mood. That change alone makes the dollar choppy. As of early September, the broad dollar index is off roughly 2-4% from its Q1 highs, not a collapse, but enough to re-shuffle returns on international funds. Here’s the thing: for U.S. investors, a softer USD tends to lift unhedged foreign equity returns. Rule-of-thumb: if the dollar falls 5% against a basket of foreign currencies, your unhedged EAFE-type fund gets about a 5% currency kicker, before fees and tracking noise. That’s not theoretical, you see it right on the statement even if the stocks abroad didn’t move.

Fed policy: Compared with last year, markets expect easier policy. Even if the actual cut timing slips to later this year, the expectation itself narrows U.S.-foreign rate differentials and can lean the dollar lower on the margins. That’s why the “how-do-currency-moves-affect-retirement-portfolios” question is very 2025-core, not a side show.

Japan: Policy normalization remains slow, and the yen is still weak versus the dollar. USD/JPY has spent most of 2025 above 150, trading as high as the low-160s at points. For developed ex‑US funds, that yen weakness has been a swing factor, great if you owned Japanese exporters in local terms, less great if you were counting on currency strength to boost USD returns. If the BoJ nudges rates up again later this year but stays cautious, the yen can still whip around 3-5% on headlines alone. I’ve seen retirees get whiplash here: same companies, different FX print, different mood.

Europe: Growth is uneven, Germany is still sluggish while services pockets hold up, and the euro’s been range‑bound. EUR/USD has mostly lived between ~1.07 and 1.12 this year. Translation: less dramatic FX drag or tailwind than 2022’s dollar surge. For retirees, that means your Europe ETF performance is leaning more on earnings and less on the currency lottery. Actually, let me rephrase that, it’s still a factor, just not the only factor.

EM currencies: This is where it gets noisy. You’ve had idiosyncratic moves tied to commodities and politics. The Mexican peso has stayed relatively firm since 2023; the Brazilian real swung double‑digits this year; several smaller EMs saw election-week gaps. Great for diversification, low correlation helps the overall portfolio, but lousy for predictability month to month. If you hold EM local bonds unhedged, budget for bigger swings. In my notes, I literally write “EM FX: accept volatility, size smaller.”

Inflation pass‑through: This matters for day‑to‑day costs. A stronger USD tends to dampen import prices; a weaker USD can nudge them up. Fed and IMF studies generally find that a 1% dollar depreciation raises non‑energy U.S. import prices by roughly 0.2-0.3 within a year, with a smaller consumer price impact, call it 0.02-0.05 on CPI per 1% move, depending on the basket and energy. Not earth‑shattering, but if you’re on a fixed draw, a few tenths here and there add up, you know?

What to do with this:

• If you use unhedged international equities, remember the FX lever. A 4% softer USD can turn a 2% foreign market gain into ~6% in dollars.
• For Japan-heavy exposure, recognize yen as a swing factor. Hedged share classes can smooth it, no heroics, just less noise.
• EM local debt is fine in moderation, but size it so a 10% FX swing doesn’t wreck your monthly withdrawal plan.
• For near-term spending, consider a simple euro or peso hedge if you know you’ll pay rent abroad, three to six months is usually plenty.

Circling back: FX isn’t a side bet for retirees this year, it’s part of your return, and part of your grocery bill. That mix, honestly, is why I still keep a currency column in every client’s plan, even if it looks old‑school.

How FX moves hit performance, income, and withdrawal plans

So, here’s the math that actually matters for your statement: your total return in dollars is basically local asset return ± FX return = your USD return. If a European fund is up 8% in euros and the euro falls 5% vs. the dollar, you only see ~3% in USD. Flip it and the dollar weakens 5%? Now you’re closer to 13%. It’s mechanical, not magic.

Volatility is the second piece. Major pairs still move plenty. Over a typical year, EUR/USD, USD/JPY, and GBP/USD often swing 5-15%. That’s not exotic, that’s normal. Case in point: in 2022 the dollar index (DXY) finished roughly +8% for the year after peaking near +20% intrayear; last year the dollar gave a little back, and this year the tape’s been choppy, EUR/USD has bounced roughly in the 1.06-1.12 neighborhood if I remember correctly, while USD/JPY has swung by about 10-12% at times with the BoJ’s policy tweaks. EM FX can move more; single‑year ±15-25% isn’t rare, especially around election cycles or commodity shocks.

Correlation matters because FX sometimes buffers equity moves, sometimes it just pours gas on them. Historically, USD tends to be a “risk‑off” currency, when global equities wobble, dollar strength can trim your foreign returns in USD terms. Not always, but often. In my notes, the rolling correlation between the USD and non‑US equities has been modestly negative at times, near zero at others; that’s a fancy way of saying you can’t count on FX to always help, and it might hurt right when you don’t want it to.

Income is where retirees feel it in real time. Dividends and coupons paid in foreign currency translate at spot. A 10% USD rally cuts the USD you recieve by about 10%, even if the company didn’t change its payout one cent in local terms. Earlier this year, I saw a client’s euro dividends translate ~4% lower purely on FX, which, you know, isn’t catastrophic, but on a fixed draw it’s one more haircut.

Sequence risk is the kicker. Early‑retirement withdrawals during a weak‑foreign‑asset, strong‑USD year can compound losses. Simple example: your international sleeve drops 12% locally and the dollar rises 8%, your USD result is roughly −19%. Pulling 4-5% for spending that year forces you to sell more shares at the worst time, locking in both the market hit and the FX hit. Do that a couple of years in a row and the account balance doesn’t just recover when markets rebound; it crawls. Actually, let me rephrase that, it can recover, but it probably takes longer and needs better subsequent returns.

Liability currency: this is the part people skip. If your spending is in USD, hedge more of the foreign currency risk. If your spending is in pesos, euros, or yen because you live abroad part‑time, hedge to your spending currency. It’s not about being clever; it’s matching assets to liabilities so your groceries line up with your portfolio.

Anyway, here’s a quick checklist that tends to work in practice, with no heroics:

• Return decomposition: Track both the local return and the FX line. Many brokers show it; if not, approximate: USD return ≈ local return + (foreign currency move vs. USD).
• Volatility guardrails: For unhedged developed markets, budget ±10% FX noise per year; for EM, budget ±20%, not a forecast, just sizing risk.
• Correlation sanity check: Assume FX won’t always bail you out. Plan for occasional amplification during equity drawdowns.
• Income cushion: If you need $50k in annual dividends and 40% is foreign, a 10% USD upswing might cut ~$2k off that flow. Hold a few months of cash or short T-bills to smooth it.
• Sequence protection: In the first 5-7 years of retirement, consider hedged share classes for part of your international sleeve to reduce the chance of a double‑whammy year.
• Liability match: Spend in USD? Hedge more. Spend abroad? Hedge to that currency, even if it feels “extra.”

Circling back: FX isn’t a side quest, it’s baked into your total return, your income, and your withdrawal math. I think of currency as a line item right next to fees and taxes, because it occassionally hits just as hard.

Practical levers: hedged vs. unhedged, and when to use which

Actually, let me rephrase that: you don’t need to guess the dollar’s path, you can choose your exposure. Decide where you want FX risk to live, equities, bonds, or not at all, and keep it consistent with your spending currency. I treat this like choosing between fixed and adjustable-rate on a mortgage. Neither is “right” in all seasons; it’s about fit.

Equities: If you’re investing for growth, unhedged foreign stocks add another return stream, currency, that occassionally offsets local equity moves. Long term that can help diversification. MSCI’s long-run data shows that hedging developed ex‑US equities cuts volatility by about 25-35% without a material impact on decade‑scale returns; the currency piece nets out over time but it can make the ride bumpier year to year. In practice, I’ve seen unhedged developed ex‑US equity volatility run ~15-16% annualized vs ~12-13% for hedged, ballpark, not a promise. So, if you want the smoother ride in the next 12-24 months, hedge more. If you’re playing the long game and don’t need the money soon, unhedged is fine, and sometimes better when the dollar softens.

Bonds: High‑quality global bonds are usually hedged by default, and for good reason. Currency dwarfs bond returns in the short run. Vanguard’s international bond index (BNDX) is 100% USD‑hedged and has kept volatility around the 3-4% range historically, while the same bonds unhedged can swing 6-8% because FX is doing cartwheels. If your fixed‑income sleeve is there for stability, mine is, keep it hedged.

Tactical tilt for income: If you rely on your portfolio for current cash flow, this year, not five years from now, consider hedged equity for the portion funding near‑term withdrawals. Think of it like a paycheck stabilizer. A simple rule I like: hedge the next 2-3 years of expected withdrawals from foreign equities; let the rest run unhedged. I’m still figuring this out myself on sizing, but that framework has kept clients from selling into a nasty FX downdraft.

Vehicles: Use hedged share classes or ETFs with “-Hedged” in the name. Examples: iShares MSCI EAFE Hedged (HEFA) or Xtrackers MSCI EAFE Hedged (DBEF) for developed equities; for bonds, BNDX or iShares Core International Aggregate Bond (IAGG) are USD‑hedged. Some active managers hedge systematically (100% or 50% sleeves). You can also blend, hold IEFA (unhedged) alongside HEFA to target, say, 50% hedged.

Cost check: Hedging isn’t free. Expense ratios are usually a touch higher, often an extra 0.10-0.30% per year. Concrete example: IEFA is about 0.07% while HEFA and DBEF sit near 0.35%. That’s real money, but you’re trading it for lower volatility, again, roughly a quarter to a third less variance in developed ex‑US equities. If you’re funding withdrawals soon, the fee can be worth the sleep. If you’re 30 and accumulating, maybe keep fees rock‑bottom and embrace unhedged noise.

Rebalancing: If FX moved a lot this year, call it ±5-10% versus your spending currency, rebalance to your target hedge ratio. Don’t overthink it. If you set 60% unhedged / 40% hedged for equities and the dollar popped, your hedge weight likely crept up. Trim back to target, restore the mix, move on. Earlier this year I watched someone “ride the dollar” and, well, the round‑trip erased the gain… but that’s just my take on it.

Bottom line: Put FX risk where you want it. Equities: unhedged for long term diversification, hedged for short‑term smoothing. Bonds: hedge high‑quality global by default. If you need near‑term income, lean hedged. And remember, none of this requires predicting the dollar. It’s just setting the thermostat and letting the system do its thing. I was going to get into cross‑currency basis here, but anyway, that’s a rabbit hole for another day.

Taxes, accounts, and where FX sits in your plan

This actually reminds me of a client who learned the hard way that foreign withholding taxes don’t care about your carefully crafted spreadsheet. Great portfolio, clean rebalancing, but dividends from a Swiss ETF landed in his IRA and, poof, 35% statutory withholding at source with no easy way to reclaim inside the IRA. Look, the dollar’s been choppy this year with rate-cut odds swinging around, but taxes don’t swing. They just take their slice unless you set things up properly.

Foreign dividend withholding: paperwork isn’t optional. Withholding varies by country and fund domicile, and treaty rates often beat headline rates if you file the right form in a taxable account. Examples US investors commonly see in 2025:

• Canada: 25% statutory on dividends, typically reduced to 15% with a valid W‑8BEN under the U.S.-Canada treaty.
• Switzerland: 35% statutory, usually reduced to 15% via treaty when paperwork is in order (outside of tax-deferred accounts).
• Germany: often 26.375% statutory, treaty rate commonly 15% when properly claimed.
• U.K.: 0% withholding on most dividends for non‑resident investors. Yes, zero.

In taxable accounts, you can often claim a Foreign Tax Credit (Form 1116). The de minimis rule lets many filers claim up to $300 ($600 if married filing jointly) directly on the 1040 without Form 1116, handy if your foreign funds aren’t huge. But you need the W‑8BEN on file with your broker so the treaty rate actually applies. No form, no reduced rate. Simple as that.

Taxable vs. IRA: Withholding that hits inside IRAs or 401(k)s is usually not recoverable. That’s why, when the yield matters, I’ll often keep foreign dividend payers in taxable and keep the IRA for U.S. equities or hedged global bonds. Not a rule, but it tends to improve after‑tax income over the long term. Clients sometimes push back, “But the fund is cheaper in my rollover.” Sure, maybe by 3-5 bps. But a 15% foreign levy on a 3% dividend is 45 bps a year. Math wins.

Capital gains and FX: For plain‑vanilla mutual funds and ETFs, the FX impact is baked into the NAV and distributions. You don’t file a separate FX schedule for the currency moves themselves. If the yen strengthens and your unhedged Japan fund pops, that’s reflected in the fund’s price; your 1099‑B and 1099‑DIV carry what you need. Now, if you’re running individual ADRs with special reclaim processes or you dabble in forwards directly, okay, different story, but most retirement investors aren’t doing that.

TIPS and I‑Bonds: These hedge U.S. inflation, not FX. Good for USD liabilities, Social Security gap coverage, college in dollars, the usual. TIPS accrue inflation (OID) that’s taxed annually in taxable accounts; I‑Bonds defer federal tax until redemption and skip state tax. Nice combo against domestic inflation risk, zero help if your future rent is in euros. I realise that’s obvious, but I still get asked.

Recordkeeping: Please don’t eyeball this. Keep a simple schedule in your Investment Policy Statement: list equity by region with hedge status (e.g., “Developed ex‑US: 60% unhedged / 40% hedged”), same for bonds. Update quarterly. If FX swings ±5-10% vs. your spending currency, your hedge ratio drifts, especially this year with all the policy chatter, so you probably need a nudge back to target. I started to build a little Google Sheet template for a client and ended up writing a two‑page IPS appendix instead… which, honestly, worked better.

Quick placement checklist (not perfect, but it works):

1. Taxable: international dividend payers, especially where treaty rates are 15% with W‑8BEN; use the foreign tax credit.
2. IRAs/401(k)s: U.S. equities, U.S. bond funds, and hedged global bond funds; avoid high‑withholding foreign dividend funds here.
3. Everywhere: broad, low‑turnover index funds to minimize capital gains distributions. FX shows up in NAV; you don’t file it separately.
4. TIPS/I‑Bonds: hold for USD liabilities; don’t expect FX protection.

Your next moves: a simple FX game plan for retirees

So, here’s the plan that actually fits real life. Keep your core in line with how and where you spend, use hedging where volatility would hurt withdrawals, and let the rest compound without overthinking every uptick in the dollar. You’ve got time, and you’ve got tools. And honestly, I wasn’t sure about this either when rates started zig‑zagging earlier this year, but the simple stuff still works in 2025.

1) Map your spending currency

• USD‑only spenders: favor more hedging. If you spend 95%+ in dollars, hedge a meaningful slice of foreign assets so FX doesn’t whipsaw your paycheck. A 20% international equity weight that’s fully unhedged means a 10% USD move hits your total portfolio about 2% (0.20 × 10% ≈ 2%). That’s fine for growth, not great for next year’s grocery money.
• Part‑time abroad: align assets with liabilities. If you’ll spend ~30% in EUR and 10% in MXN, hold a mix that mirrors that, some euro cash/bonds, maybe a euro‑hedged bond fund for USD stability plus unhedged euro equities to naturally match future euro expenses. (You don’t need to be perfect, just be directionally right.)

2) Set a policy, write it down

• Equities: pick a target hedge ratio for developed ex‑US (e.g., 40-60% hedged) and keep EM equities mostly unhedged (hedging EM is expensive/messy).
• Bonds: keep international bonds mostly or fully hedged to USD. The yield pickup is in the credit/rates, not the currency. Vanguard’s broad hedged international bond funds sit around 0.05-0.15% in fees, which is cheap insurance.
• Cadence: revisit annually, not weekly. Actually, wait, let me clarify that, rebalance by policy, not by headlines.

3) Bucket the cash flows

• Near‑term (2-4 years of withdrawals): hold in USD‑stable assets, Treasury bills/notes, short investment‑grade, CDs, or a high‑quality short‑term bond fund. This avoids FX timing risk when you need to sell for spending.
• Mid‑term (years 5-10): mix of U.S. core bonds, some hedged international bonds, plus a modest slice of equities.
• Long term: global equities diversified and mostly unhedged for growth. Yeah, FX will wiggle, let it.

4) Use the right tools for the income sleeve

• Low‑cost hedged ETFs for income: currency‑hedged developed ex‑US equity funds for dividends, and USD‑hedged global aggregate bond funds for steady coupons. Expense ratios in this bucket can be kept under ~0.20% these days; you shouldn’t pay more.
• Growth sleeve: keep diversified and mostly unhedged. Over full cycles, FX noise tends to wash out, while fees and bad timing don’t. The thing is, compounding hates frictions.

5) Rebalance without drama

• After big FX moves (say ±10% in your main cross) or on set dates (semiannual works). This year the dollar has stayed firm with U.S. rate differentials, and we’ve seen several ±5-10% swings across major pairs since last year, enough to push hedge ratios off target. Nudge back; don’t chase.

Example policy: “Developed ex‑US equities: 50% hedged; EM equities: 0% hedged; International bonds: 100% USD‑hedged. Rebalance at ±10% FX moves or each September.”

6) Stay practical

If the allocation helps you sleep and fund your life, it’s the right one for you, even if it’s not textbook‑perfect. I’d rather you reliably recieve your spending cash than nail the “optimal” hedge. And, occassionally, skip a tweak if trading costs or taxes would eat the benefit.

One last stat to keep you honest: FX passes through to USD returns nearly 1:1 in the short run. That means a 10% stronger dollar can reduce unhedged foreign equity returns by roughly 10% for the period (before local market effects). It sounds obvious, but writing it into your IPS keeps you from rationalizing after the fact. Anyway, when you’ve got buckets set and a simple hedge policy, the rest is just… maintenance. I get more enthusiastic about this than I should because boring works.

Frequently Asked Questions

Q: How do I figure out if my retirement portfolio already has currency risk?

A: Look, you probably do. Check your statements or fund fact sheets: if you see international or “ex‑US” equity funds (developed, emerging, ACWI ex‑US), those are usually unhedged by default, so FX is in the mix. If the fund name says “Hedged” (e.g., International Equity Hedged), that means the manager tries to neutralize currency moves. Bonds are different: many global bond funds are hedged to the dollar, fact sheets often say “USD‑hedged,” “currency‑hedged,” or “benchmark hedged.” Practical steps: 1) Add up your non‑US equity weight (a lot of target‑date funds sit around 35-45% of equities abroad this year). 2) See if your bond funds note 80-100% USD hedging, pretty common. 3) In taxable accounts, note that currency effects flow through your fund’s returns; you’ll recieve the tax character the fund reports (usually capital gains for equity funds).

Q: What’s the difference between hedged and unhedged international funds for retirees?

A: Unhedged equity funds move with local stocks plus currency, so a 10% dollar rise can shave something like ~10% off foreign equity returns over that period, all else equal. Hedged equity funds try to strip out that FX swing, leaving mostly the local stock move. For bonds, hedging mainly reduces volatility; that’s why many global bond funds are already USD‑hedged. The trade‑offs: unhedged can help if the dollar weakens (you benefit), but it adds noise; hedged cuts that currency noise, which can make withdrawals feel smoother. Costs are usually a few basis points higher for hedged versions, but still low in broad ETFs this year. If you want steadier income math, hedge bonds and consider partially hedging equities.

Q: Is it better to hedge my foreign stocks in retirement, or leave them unhedged?

A: It depends, sorry, I know that’s annoying, but it’s true. Here’s the thing: if you spend in dollars and prioritize smoother year‑to‑year withdrawals, hedging a chunk of your international equities makes sense. A simple rule of thumb I use with clients: keep bonds 80-100% USD‑hedged, and hedge 30-50% of your international equity sleeve. That keeps some diversification if the dollar weakens later this year or next, while reducing the gut‑punch when USD rips like it did against the yen earlier this year around 160. Implementation: swap part of your unhedged international ETF (e.g., IXUS/VXUS equivalent) for a hedged peer (e.g., HEFA/HDMZ‑style funds), then rebalance annually or at 5% bands. If your spending is flexible and you don’t mind volatility, staying unhedged on equities is okay, just keep 2-3 years of withdrawals in cash/short‑term Treasuries so FX swings don’t force bad‑timed sales.

Q: Should I worry about currency moves if I’ll spend part of my retirement abroad?

A: Yes, but you’ve got options. If you’ll spend, say, 30% of your budget in euros, align assets to liabilities: 1) Hold 1-2 years of euro‑denominated expenses in a EUR money‑market fund or a multi‑currency cash account. 2) Own some euro‑area bonds (hedged to EUR, not USD) inside an IRA if possible to avoid messy tax lots, many brokers now offer EUR‑hedged global bond ETFs. 3) For equities, you can keep them unhedged to the spending currency (EUR) or use EUR‑hedged share classes; either way, match at least a portion to what you’ll actually spend. Alternatives if that sounds like too much admin: keep everything USD but set a simple rule, each quarter, if EURUSD moves >5% from your plan rate, top up the euro cash bucket back to 12 months of expenses. That’s low‑maintenance and keeps FX from hijacking your lifestyle. And yes, sanity check fees and spreads on conversions, shop around; the difference is real.

@article{how-currency-moves-can-reshape-your-retirement-portfolio,
    title   = {How Currency Moves Can Reshape Your Retirement Portfolio},
    author  = {Beeri Sparks},
    year    = {2025},
    journal = {Bankpointe},
    url     = {https://bankpointe.com/articles/currency-moves-retirement-portfolios/}
}