By Shannon Raisor
For many, retiring abroad sounds like a dream come true. In fact, in the past three years, the number of Americans who have chosen to retire in a foreign country has increased by 84%. To put this in perspective, experts suggest that 12% of U.S. retirees have settled outside of the country. However, for the millions of retirees taking the leap, there are many considerations to take into account to make this dream a reality – from finding the right healthcare coverage to identifying the best banking strategy to ensure that pension or Social Security benefits arrive quickly.
There are some mandatory steps to take in order to prepare for your retirement abroad, but most of these essentials have some flexibility you can take advantage of. Once you have a visa and your passport in hand, it’s time to tackle the following:
Determine Your Cost of Living
First and foremost, when looking for places to retire, consider the affordability of your new location. Research is an imperative part of moving – especially when assessing costs in a foreign country. It is essential to look into the average cost of living, or the total average amount of money you will need to cover your basic necessities. As this varies widely from country to country, be realistic about what and where your budget can take you. A few common expenses that must be factored into your cost of living are housing, food, taxes, transportation, and healthcare.
To avoid relocation regret, be proactive rather than reactive when it comes to your finances. Start by working out what daily expenses you are already shelling out and build upwards from there. Make sure to factor your recurring expenses into this equation, such as rent or mortgage and healthcare payments, and look into how these costs may change in your soon-to-be home country.
Be honest with yourself when making these calculations – you may even want to overestimate your spending to allow for wiggle room, as obstacles like fluctuating exchange rates and rising inflation can come into play and throw off your projections. Chances are your initial estimate of monthly expenses can be easily exceeded, so give yourself a cushion for expenses beyond the basics. Whether it’s enjoying a fine dining meal, taking a spontaneous weekend excursion to see all of the sights your new home has to offer, or going out for a magical evening of dancing, set aside part of your budget to take part in activities that make your heart flutter.
Pro Tip: ExpatForum is a great site for resource sharing with other retirees who’ve taken the plunge and moved abroad. For any quick questions that don’t require a financial planner, look to leverage forums and peer sharing.
Know Your Exchange Rates
Understanding currency exchange rates is crucial when determining if your budget is feasible in your desired country. While rate fluctuations can’t be overlooked, they can be managed with the right planning in place. Through careful preparation, sizable dips in currency exchange rates can be mitigated.
Firstly, aim to “fix” the currency. This essentially means you can purchase a currency in advance and bank it. That way, in a few months, if rates have increased significantly, you’ll have some cash on hand that won’t be subject to unexpected rate changes.
Secondly, transfer your money efficiently. The average fee associated with transferring money across borders is a significant 6% – make sure you know your fees to anticipate the true total cost you’ll pay when moving money.
Pro Tip: Spend some time comparing different transfer services, as most are riddled with hidden fees. Look into emerging cross-border accounts that can offer significantly better rates with more transparency.
Get a Handle on Tax Implications
International taxes can be tricky, but luckily the U.S. has tax treaties with a multitude of foreign countries. This essentially means that residents of certain foreign countries are taxed at a reduced rate or are exempt entirely on certain items to lessen the burden. It is, however, important to note that unless you renounce your U.S. citizenship, you will still have to pay domestic income taxes regardless of where you live.
Tax legislation varies from country to country and it is important to do your due diligence ahead of hopping on the plane to your new abode. A few laws to be aware of are FATCA, FBAR, and PFIC. You can read more about these here.
Pro Tip: Consult with your accountant to ensure all necessary filing steps are being taken while minimizing the impact on your wallet.
Get the Home That Matches You
Now that you know you have properly budgeted to live in your new country, it’s time to think about where to live and how you can pay for a home. Should you buy or rent? Both options have their advantages and disadvantages and it comes down to what you are looking for out of your new location.
Home buying is by no means hassle-free and may come with visa or citizenship restrictions. As some countries have different credit score systems, the waters can get a bit murky when financial records are involved. As the theme goes, investigate the specific requirements needed to make a property your own in your soon-to-be new country.
While buying a home may seem compelling, don’t take renting off the table. It may seem like renting a space is taking a step backward, but it can provide flexibility for those who may not be ready for a long-term commitment abroad.
Pro Tip: First things first, work with a real estate agent who is reputable and fluent in your native language. Secondly, make sure they are a member of the Federation of Overseas Property Developers, Agents & Consultants, or a member of the Association of International Property Professionals. As far as attorneys are concerned, consider sticking to an independent representative who is fluent in both the local language and your own.
Set Up a Local Bank Account (and Keep Your Current One)
While you may feel loyal to your bank, the most popular bank in your current city may not have branches where you are moving. In fact, most U.S. banks do not have international locations.
With that said, there are several benefits to maintaining a relationship with your current bank. For example, keeping your credit cards active and using them on occasion can help build and maintain your credit score. Similarly, if you anticipate any recurring bills, keeping your domestic account will save you the hassle of transferring money back and forth in the future.
Finally, as the old adage goes, it’s better to be safe than to be sorry. To ease any worries about financial hang-ups abroad – like not being able to access your pension or Social Security – it may be a wise decision to not cut ties with your U.S. bank entirely and keep your account open. Just make sure you inform your current bank that you will be moving abroad.
When it comes to opening a local bank account in a foreign country, things can become complicated quickly. To avoid roadblocks, read the fine print to understand the bank’s processes and eligibility requirements. When assessing a bank, some important questions to ask include: Are there lots of branches near my new city? What do my monthly charges look like? Do they offer English-speaking support services?
Pro Tip: Don’t leave home without some important documents. Once you’ve selected your new local bank and are ready to open an account, you’ll need a few standard materials including two banking credit letters, at least one professional reference, two forms of photo identification, and proof of address.
Sign Up for an International Healthcare Plan
Medicare and conventional U.S. insurance plans typically don’t include overseas coverage. It’s crucial to plan ahead to ensure you have health coverage in your new country. The range of costs for expat health insurance varies quite a bit, from $170 a month to nearly $1,000, according to Visa Guide, so look into your full range of options before your move.
Factors like age, citizenship, coverage options, health, and location all play into the cost. The size of the medical network, local hospitals that take your new provider, deductible size, and provider security are all considerations that should be taken into account when picking your new provider.
American expats have three main options when it comes to health insurance: National (public) insurance, international (private) insurance, and a combination of public and private health insurance.
Pro Tip: Some highly reputable international health insurance plans for U.S. expats include GeoBlue Xplorer, Cigna Global Insurance Plan, and William Russell. Make sure to shop around for what plan will best fit your needs.
Now that you’re ready to take the plunge and retire abroad, the world is truly your oyster. Before you dive in headfirst, ensure that you have thought ahead for the unique financial scenarios your move will put you in. With thoughtful consideration and planning, you’ll be packing your bags in no time and soon enough your biggest worries will be where your first scoop of gelato is coming from and what tranquil beach you’ll be lounging on first.
About the author: Shannon Raisor
Shannon Raisor is the North America customer advocate at Wise, a global technology company, building the best way to move money around the world. Shannon has been with Wise for three years and works directly with the company’s 15 million global customers to find solutions to their money movement and management problems.