“Wherever you go, go with all your heart.”
Retirement should feel like a vacation that you never have to come back from.
Those wanting to retire abroad really take this to heart; they don’t just want it to be a vacation, they want it to be the best vacation they ever had!
I meet with families all the time—especially oil and gas employees—who went on an assignment to another country and fell in love with it. Now their goal in retirement is to go back for good.
I think this is great. But keep in mind that vacations are usually a few weeks at most. Even the most extensive job assignments only last a couple years!
Retirement lasts for decades. A lot can change in that amount of time, some of which you can control and some that you can’t, but no matter what, you have to position yourself for success.
So if you plan on retiring abroad, here is what you need to keep in mind.
Calculate the Cost of Living
This is the number one reason people retire abroad, just ahead of quality of life and better weather.
It’s a great dream: living beachside in a tropical paradise, not a care in the world, and by the way—it costs less than you spend right now!
Depending on where you plan to retire to, this dream could be a reality. Check the exchange rate of the country you want to move to, research average costs for things like transportation and housing, and then set out a budget for what you can afford.
Make a plan, and then you need to stress test it. Don’t assume this great cost of living will be around for forever—remember, we’re talking about planning for decades here.
You might also be tempted to spend more, because you get more for your money. Definitely don’t do that!
In fact, I say that you should take this opportunity to reduce your normal living expenses, while trying to keep your lifestyle the same, because there are other expenses that will probably be higher than if you stayed state-side.
Here are a few examples:
Count on Travelling More (A Lot More)
Travel expenses usually increase substantially in retirement, and retiring abroad only magnifies this fact.
You’re in a beautiful country surrounded by places you’ve never been before. Of course you want to get out and explore! And even if you’re travelling on the cheap, you still may end up spending more than if you retired in the U.S.
Plus, there is one place where you are almost certain to travel frequently; and that’s back home.
You probably have family, grandkids, friends and neighbors, none of which are coming with you. Hopefully they’ll come visit you in paradise, but for the most part, they have their own lives back home. Which means that if you want to stay connected, you have to go to them.
This might not be a deal breaker for you. But unfortunately, you won’t really know how homesickness will affect you until you take the plunge.
Whatever your travel budget in retirement, if you want to retire abroad, it’s better to bump it up just in case.
Don’t Cheap Out on Medical
Affordable health care is often included in the lower cost of living that expats expect when they retire abroad. And it’s true that depending on where you go, you could find medical services that are as good or better than the U.S. for a considerably lower cost.
Is that the end of the story? Of course not!
While the overall cost of health care might be lower abroad, the assistance you receive from the U.S. government might be lower as well.
Every situation is different, but suffice it to say that if you move your residency outside of the U.S., you probably won’t receive many of the benefits you are entitled to from Medicare.
Check out this Medicare fact-sheet on receiving benefits outside the U.S., and be sure to consult with a Medicare benefits professional before making any decisions.
You worked had for your right to those Medicare benefits. Don’t take them lightly, especially since your health care costs are likely to increase the further you get into retirement.
Luckily, your Social Security benefits are likely to follow you if you move overseas. Here’s a fact-sheet detailing how and when you can receive Social Security payments outside the U.S.
Tackle the Tax Problem
One of the trickiest parts about retiring abroad is planning for taxes.
As a U.S. citizen, you’ll still have to pay income taxes on the funds you receive from Social Security and tax-deferred retirement accounts. But what about state taxes? Property taxes? And how do you make sure that all of your financial accounts—which could now be located in two or more countries—are being properly reported?
This is just a small sample of all the tax questions you will need to answer when moving abroad. Most of them will depend on where you’re moving to, but there are two things you should absolutely do first.
One is to read up on the tax treaty between your new country and the U.S. Some nations have agreements with the U.S. to reduce or exempt the amount of tax owed, or vice versa, if you are paying income taxes back in the states.
And don’t forget to figure out the taxes you could owe in your particular state of residence.
The second is to find tax professionals both here and in the country you’re moving to. Make sure they are working together to create a plan for all of your income streams, and all of your accounts, across all of the countries where you have assets.
This can get pretty complex, so having a team to work with you is critical!
Favorable tax laws might not have much of an impact on where you decide to go, but if you’re torn between a couple of options, saving money on taxes could play a big role in your long-term success.
“We travel not to escape life, but for life not to escape us.”
Like I said in the beginning, retirement should feel like the ultimate vacation.
Although it’s always great to plan for the fun stuff, the thing that really makes for a successful vacation—and a successful retirement—is planning through all of the mundane but important details.
If you want to retire abroad, let’s talk!
CLICK HERE to become an Insider! Join my Email Insider Group to receive weekly tips and tricks on finance, education, home buying, insurance, Social Security and everything in between. Byron W. Ellis, CFP®, CLU®, ChFC®, CRPC®, is a CERTIFIED FINANCIAL PLANNER™ professional and Managing Director United Capital Financial Advisers, LLC, a Financial Life Management firm. The information contained in this article is intended for information only is not a recommendation, and should not be considered investment advice. Please contact your financial advisor with questions about your specific needs and circumstances.
© Byron Ellis