From sandy beaches to surprisingly affordable living costs, the latest ranking of foreign retirement destinations makes becoming an expat retiree very attractive. But is retiring abroad really as easy – and affordable – as it sounds?
If you are retiring abroad to indulge an adventurous streak, you are on the right track. Colombia, for instance, is very welcoming to foreigners but, if you are looking to stretch your retirement dollars, you might be in for a surprise. Paul Christopher, Chief International Investment Strategist in the Advisory Services Group of Wells Fargo Advisors, has lived in several countries. “In Costa Rica, Panama, and Thailand, your dollar really will go further,” he tells Giving Back Magazine,
“But there are hidden costs to living abroad.”
The key to a good experience is to know yourself and your retirement needs and to get to know your destination. To pinpoint your best options, ask yourself these three questions:
How healthy are you? The quality of health care varies widely in other countries. Some overseas destinations – such as Malaysia and Singapore – offer world-class facilities and services at a fraction of U.S. prices. Others, like Costa Rica, may not provide the standard of care that Americans expect
How local do you want to go? Everyday goods that are cheap and plentiful in the U.S. may be in short supply – or very expensive – in developing markets. “The more willing you are to eat the local cuisine and enjoy local entertainment, the less money you will need,” he says.
How often do you plan to return home? If it is important to see friends and family, consider choosing a locale that is closer to home. “A few long flights home during the year can really drive up expenses,” Christopher says.
Drafting a Plan
Once you have decided to retire abroad, team up with your Financial Advisor and accountant to help determine whether you have sufficient financial resources.
Consider the following costs:
Goods. Sales tax is much higher in European countries and often includes a value-added tax, or VAT, that can drive up the total bill by almost 20%. Gasoline can also be more expensive outside the U.S., and islands are notoriously high-priced places to shop.
Currency. Be sure to look at your portfolio with your Financial Advisor regularly to make sure you are making good use of the local currency exchange rates.
Income taxes. In many countries, you will be paying local as well as U.S. taxes on your income. In others, you will find a decidedly favorable tax environment. For instance, several Latin American countries, including Belize, Costa Rica, Ecuador and Uruguay, do not charge tax on foreigners’ retirement income. Work closely with your accountant and Financial Advisor to weigh the tax consequences of moving to your chosen destination.
Finally, before you pack, Christopher suggests meeting with your Financial Advisor to map out an appropriate income strategy that takes into account a range of factors, from your liquidity needs to the potential difficulty of managing a financial issue from abroad.
Living abroad during retirement requires more strategizing than it took to organize your summer vacation or sabbatical. However, a smart approach will make for a smoother transition.