Considering Retiring Abroad? Here are the Pros and Cons.

If you are unsure about your retirement savings, retiring abroad could be the solution to your money worries.

With the ever-rising cost of retirement in America, it can be hard to choose whether to keep working a few extra years to boost your savings or to just go somewhere you can live nicely on the retirement income you have now.  

You’ve probably all heard tales of how you can live off of 50 cents a day in some locales and while that is possible you might want to be sure that that place also has access to good healthcare.

So could retiring abroad be the answer to your financial prayers?  First, let's see if you have the personality to do so.  Here are a few characteristics of people who thrive abroad.

Characteristics of People Who Retire Abroad:

• Flexible and open minded
• Has patience 
• Loves a challenge
• Has a sense of adventure
• Has the money to do so  

Let's take a look at these characteristics in more detail below.  But, just because you have these traits doesn't mean retiring abroad will be the best decision for you.

We will take a look at the pros & cons of retiring abroad as well as go over how much you may need, how to choose a country, and what you should do when you get to your new home.

Characteristics for Retiring Abroad

1. You are flexible and open-minded 

Moving to a new country will no doubt be very different from your hometown both politically and culturally.  It will require you to keep an open mind and be flexible.  Things are not going to be done the same as back home and you may have to learn a whole new way to live.

Being able to go with the flow is key.  So if you are one to gripe and complain about things not being done "right", retiring abroad may not be for you.

2. You have the patience for it

In addition to being flexible and open-minded, you must be patient.  It may take time to get used to a new way of living and a new way of speaking.  Be patient and let things progress naturally.  Eventually you’ll get the hang of it.

3. You love a challenge 

Retiring abroad can be a challenge.  From figuring out how to turn on your bathroom light to how to order a pizza, it can be hard living in a different country.

There are so many things to learn, so many culturally differences to understand.  But if you are up for the challenge, then, by all means, go for it.

4. You have a sense of adventure 

I think traveling itself is an adventure so if you have made up your mind to live abroad you must be an adventurous person.  Living in a new country opens the door to a world of new opportunities, new experiences, and a whole new culture to explore.

So if you live for the thrill (of life), retiring abroad could provide you with the excitement you seek.

5. You have the money to do so 

Of course, retiring abroad costs money, and the main reason people retire abroad is to save money in retirement.  But, not all places are cheaper than the US.  And those of us who want the finer things in life must be ready to cough up the dough for it.

As with everything in life, there are pros and cons to retiring abroad.  And even if you do check off all the boxes above you may still find that living abroad is not for you.

The Pros of Retiring Abroad

Lower Cost of Living

There are many benefits of retiring abroad.  For one thing, it can help you save loads in retirement while not having to give up the lifestyle you desire. 

In many countries, your dollar will stretch far and wide so you may discover that you are actually living better than you ever did back home.  

Because it is so cheap to live abroad, that is exactly what many of the early retirees of the FIRE movement are doing.

Choosing Your Ideal Location

Living in a new country will also give you new experiences and the opportunity to create the life you have always wanted.  A house by the beach?  Weather that never goes below 70 degrees?

To a certain extent you can customize your perfect life, which may not be the case back home.  I know in the US, you would be subject to some serious financial constraints.

Healthcare and Incentives

In addition, many countries offer access to good affordable healthcare so even in retirement you won’t have to worry about a medical bill throwing you into the jaws of bankruptcy.

You may also find that some countries offer incentives for you to retire there.  From tax breaks to healthcare discounts to half price plane tickets to priority seating and services, there are many perks for being a retiree.  

Panama, along with many other perks, even offers discounts on utility and doctor’s bills to seniors.

Wow, retiring abroad is starting to seem almost too good to be true … oh... that's right. The Cons.

The Cons of Retiring Abroad

Being Far From Loved Ones

The first downside of retiring abroad that, I am sure, is on your mind is being far from your family.  Even with the advent of great technology that can allow you to regularly check in on loved ones, it can still be hard to be so far away and not see them as often as you’d like. 

Moving abroad means leaving behind your support system and everything you know and had grown accustomed to.  Retiring abroad means now, you are going to have to make new friends and learn a whole new way of life. 

Not to mention, if you do want to fly home to visit your family, it might be pretty expensive to do so.

Language and Culture Shock

The language barrier can also be a downside for many as it can make every day life a challenge – taking public transportation, asking for directions, etc.  It can be hard even just buying bread let alone, setting up bank accounts, finding an apartment to rent, or buying a house.

On top of that, you will have to deal with culture shock.  From people digging up their noses in public to not washing their hands (here’s looking at you Japan), there are some things that are not okay back home but may be the norm in other countries.

Taxes

While some countries have tax treaties with the US, not all of them do and you may find yourself in a situation where you will be taxed twice.  Both in America when you receive your Social Security or Pension and in the country in which you live.

Retiring abroad as a US Citizen means you will be required to comply with The Foreign Account Tax Compliance Act (FATCA).  This means in addition to the usual reporting of your bank accounts, you will also be required to report any foreign assets on Form 8938.

Be aware that there are severe penalties for not doing what the IRS says and some foreign financial institutions will report directly to the IRS. 

Requirements for FATCA Form 8938

If you are living abroad...

However, if you are not required to file taxes, you don't have to fill out Form 8938 even if your assets exceed the limit. This only applies to foreign banks and not branches of US banks that may be in the country you live.

In addition to this, you may also be required to report the money in your bank account if it is over $10k at any time during the year.  This is done on a separate form, Form 114, and is also known as FBAR.

Choosing a Location

If you do decided to live abroad, you have to choose the right location for you.  You should start by confirming your budget during retirement as this will greatly influence where you can retire.  

Once that’s settled start making a list of the things you like: hot weather or cold?  Being close to the mountains, the city, or the beach?  Having a night life or a quiet life?

The next step is to research, research, research.  You should know the places and the cultures of your top picks like the back of your hand.  That way, you can make an educated decision on which place could be a good fit for you.

But before you decide decide, take a trip out there to test the waters.  Get a feel for what it would be like when you move there.  You may find that what looks good on paper isn't so good in reality.

Culture shock is probably inevitable no matter how much you research but at least you can have a clue of what to expect.  

Other things to consider when choosing your location:

• Cost of living: How far will your dollar go?
• Bill paying:  How will you pay your bills? As a foreigner, it may be difficult to get a bank account in some countries.  Also, how will you transfer/ receive your money from the states?
• Access to good affordable healthcare
• Taxes: Will you be taxed twice?
• Community:  Is there a good expat community?  Check forums for expats and reach out to them.
  

* Take a trip there before you decide.*

How much money do I need to retire abroad?

This you will have to determine from your research and talking to the expats that live in the area.  It is also heavily dependent on the kind of lifestyle you'd like to live.

There are some sites such as www.numbeo.com (free) and www.xpatulator.com (a subscription site) that can help you with estimating costs.

Arriving in Your New Country

One of the first things you are going to have to deal with is getting the right visa.  You will, probably, enter on a tourist visa but at some point you are going to have to get that squared away if you are planning to live there as a resident.

Make sure you have researched and brought with you everything that you will need to get approved.  Make note of all the restrictions and requirements necessary to secure your visa.  

Here are some things you may need:

• Birth Certificates
• Your Marriage License
• Proof of Income

Next you are going to want to get healthcare insurance as soon as possible, as you never know how long it will take to set up.  Then you’ll have to open up a bank account to make sure you can receive your Social Security and Pension checks.  

Notify the Social Security Administration when it’s all set up. 

Note: You may want to keep a bank account open in the states and then just transfer the money yourself. ~

Last but certainly not least you will want to start learning the local language.  The sooner you do this, the easier adjusting to your new life will be.

Should I buy or rent?

The decision to buy or rent will be up to you and how much money you have for retirement.  But you don't want to jump in and immediately purchase a home.  

First take some time to get to know the area and its people and make sure you truly want to retire there.  You may want to consider not purchasing a home for a year so that you can see the place in all seasons before making your decision. 

While you acclimate, you could stay at an Airbnb, check out the surrounding areas, and then make your decision.  If you do decide to buy, make sure you can own property as a foreigner.  

Thoroughly check prices and costs as in some countries people will try to scam you and charge you much more than is normal for the area.  Make sure you bring a local or a lawyer with you before going to the bargaining table.

Whether you decide to buy are rent bargain like crazy especially since you are going to retire there.  If you are renting, that's guaranteed money for the owners for many years to come. They should be able to cut you a deal knowing that.

Final Things to Consider

• Exchange Rates – while these changes usually aren’t significant you should be aware that if the dollar value does drop, it could severely affect your buying power.

• If you are not fully sold on the idea of retiring abroad, consider partial retirement abroad. This way you can balance out any cash flow shortages.

• As an extra source of income or as a safety net, consider keeping your home in the states and renting it out.

• You must keep in mind when you retire abroad that you are not on vacation! If you make that mistake, your money can be gone faster than ice cream on a hot summer day.

All in All

I may be a little biased, as I am currently living abroad, but I say go for it! Retiring abroad may be a chance for a new life and to get some new experiences and skills.  

Of course, you'll need to weigh the pros and cons before you make your decision.  But, you never know, retiring abroad may turn out to be the best decision you've ever made.