By Shane Cummings, CFP®, AIF®, Wealth Advisor & Director of Technology/Cybersecurity
Many Americans are Considering How to Retire Abroad
American retirees are increasingly considering – and pulling up stakes – to live abroad in retirement. These moves are motivated by unique reasons. I’ve seen more client interest in moving abroad the last few years. Clients are attracted to a slower pace of life and less expensive costs. Countries on the Mediterranean like Spain and Italy offer an attractive climate with a great cuisine and lower stress. I have also heard that Portugal offers a great quality of life at a small fraction of the cost of a typical American budget. Italy is also a popular destination for its abundant art history and stunning landscapes in its hill towns.
Financial reasons often factor in; many countries offer lower costs of living compared to the U.S. In any event, retiring abroad requires advanced planning; complex concerns tend to abound! Here are some important matters you’ll need to tackle if you’re serious about making the move.
1. Getting Prepared Financially for Retiring Abroad
Even under “normal” circumstances, planning for retirement is complicated. When adding in the element of an international residency, more moving parts are added – questions you need to answer and research you need to perform:
Get familiar with the local health infrastructure.
Notably, health care costs can vary significantly by country. Given how expensive health care has gotten for retirees in the U.S., this could be a net positive for someone moving abroad. Some countries offer government-managed health care, or some combination of public and private care. Specific research for the country you’re targeting is essential.
What taxes will you face?
For example, while some countries charge less for health care visits, these may be offset by higher tax rates on income or value-added taxes (VAT). This may equate to higher sales taxes on goods and services and have an impact on your consumer . If you are planning to purchase a new home abroad, researching those expected costs and factoring them into your cash-flow goals is critical. In addition to purchase cost, you will want to understand what local taxes are levied on real estate or other ongoing costs of ownership.
Fine-tune your expense projections.
An advisor will ask for financial goals in retirement. These can usually be quantified or at least estimated using best practices. When retiring abroad, additional care will be required to estimate your financial needs as much as possible to help prevent any surprises that could send your plan off . This step may be more challenging because we are used to being able to go on Zillow and instantly accessing estimates for local expenses.
Many other countries are less connected to the internet, and thus much of this information is not easily searchable. You may need to seek out and connect with other expats in your country of choice to see what information they can share before you move to get a firm grip on what to expect – food costs, transportation, living arrangements, etc.
In addition, if the bulk of your savings if going to remain invested in the U.S. and is dollar-denominated, you will inevitably encounter having to convert funds to local currency and the nuances associated with that. Converting and building up some savings locally can help buffer your savings from any major swings in the exchange rate that could be unexpected. The U.S. dollar has been strong relative to other global currencies over the last few years – that benefits U.S. savers, but conversely has not worked out well for holders of Euros or British pounds.
2. Securing Your Retirement Income Sources
You should evaluate your post-retirement income sources to determine if they will transfer internationally. U.S. Social Security payments can be received while abroad, but be sure to verify this ahead of time and communicate residency changes to the Social Security Administration when you make your move. You should also consult a tax professional with international experience or an immigration attorney to determine if the country you’re moving to has any treaties with the U.S. that would modify or change the amount of Social Security payments you’ll receive.
If you receive a private pension, other government pension, or annuity payment, be sure to check before you move that you can continue to receive those while living outside the U.S.
Will your investment portfolio be funding your retirement needs? Confirm that your investments can be accessed where you’re living, and distributions sent to a local bank for your ongoing needs.
3. Establishing Residency And Securing Visas
Moving abroad and legally remaining in your target country may require a lot of time and effort. Some countries, especially the most desirable ones, typically place limits on the number of permanent resident visas and have stringent requirements to qualify. Don’t assume this will be a walk in the park.
Consulting with a legal expert in immigration to your target country is advisable! Some countries will let you stay temporarily without a visa, but a long-term stay typically requires official approval. Some European countries offer ‘Golden Visas,’ which make it easier to obtain a residency visa, but typically by requiring the petitioner to invest a large amount of money in the host country.
4. Know the Tax Situation
It is also prudent to consult an international tax expert prior to relocating abroad. Depending on your circumstances and income level, you could end up paying U.S. income taxes and local taxes, which could stress your retirement budget. A tax expert can help analyze how you will be impacted.
Retirement distributions from IRAs or 401ks will generate ordinary income in the U.S., so avoiding double taxation is key. As noted earlier, if local taxes are higher, that may be because other services like health care are ‘included’ or subsidized by those taxes.
5. Considering Your Retirement Plans, is This a Potential Option For You?
Last but not least, spend some time in your target country as a reality check prior to taking the plunge and committing long term. Will the move be a good fit in terms of the local community and culture? Don’t underestimate the effects of culture shock. , television and articles may play up the positive elements of certain locations while glossing over the less attractive elements.
If you are not planning to learn the local language, you will want to make sure the community you intend to live in can serve English-speaking expatriates. Some communities or cities in certain countries are geared toward serving Americans living abroad and cater toward their business. In other places you may find that the locals aren’t exactly happy about Americans retiring abroad and driving up rent and housing costs and won’t put in the extra effort to accommodate you if you aren’t going to conform to local customs. Keep in mind too that moving somewhere that caters to English-speakers may water down the ‘local’ experience that you’re moving for in the first place.
Some entrepreneurs are starting up businesses to help potential expats experience countries they are interested in before making a major commitment. This can be a good way to test drive your location of choice.
Discuss Your Plan to Retire Abroad with a Financial Advisor
If you’re considering a move abroad for retirement, it’s beneficial to meet with your advisory team here at HH to discuss your goals. Let us know how we can help.
Disclosure:
Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant. All opinions or views reflect the judgment of the author as of the publication date and are subject to change without notice. All information presented herein is considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted.
