Tim and Tracey Kerin are weeks away from purchasing their dream retirement home in Costa Rica on a mountainside, overlooking the ocean. Their plan: rent the house to others for several years to help cover the costs, then retire in paradise.
“As an entrepreneur for 26 years, you work the hours necessary to meet all the challenges,” said Tim, 54, who lives in Maryland in the United States. “Now it is time to enjoy life together. When you sit outside and see the Pacific Ocean straight ahead, mountains on the left and a volcano in the distance, it is enough.”
Everyone has a different view of retirement, but for some, the dream involves a beach or countryside, a cold drink — and an entirely different country.
In the United Kingdom, 12% of people over-55 plan on moving abroad in retirement, according to UK financial firm MGM Advantage. In the US, up to 3.3 million baby boomers (those born between 1946 and 1964) plan to retire abroad, according to the US-based Travel Market Report. In Canada, it is more common to buy a place to spend the winter somewhere warm and then return to the country, said Darren Ulmer, a financial advisor with Sun Life Financial in Canada.
Whether you’re looking to spend six months out of every year in a different country or relocate entirely in retirement, you will face many of the same challenges. Retiring outside your own country’s borders isn’t as easy as packing a bag and saying adios or bon voyage.
What it will take: Retiring abroad requires research, planning, and a desire to integrate culturally — particularly if you’re headed to a place where you don’t speak the language.
“Even though there are some areas of Europe which are very ‘expatriate,’ it is still a very good idea to have an open attitude and outlook and some sense of adventure,” said Peter Brooke, a financial advisor for the Spectrum IFA Group in Cote d’Azur, France.
Moving will also requires cash on hand. Even if the cost of living is lower in your retirement destination, the cost of moving and setting up house is universally high. What’s more, in some countries, you may need to pay cash for a flat or home, as mortgages may not be available to foreigners.
How long you need to prepare: Experts recommend taking at least a year for the decision.
“Twelve-to-18 months is a great timeframe to prepare for retirement overseas,” said Nick Hodges, a financial planner, CPA, and founder of NCH Tax & Wealth Advisors in California. “Some clients are able to do it in less than six months. But more complex family and business situations should be allowed more time."
Do it now: Do your research. “Staying somewhere for a two-week holiday is very different than living in a different country,” said Andrew Tully, pensions technical director of MGM Advantage in the UK. Visit your proposed destination at various times of year and for a few prolonged stays to make sure the culture, pace, and weather match your expectations. Compare the cost of living to your proposed budget and make sure you’ve factored in the expense of moving there and getting settled.
“The people that do tend to return home tend to have misunderstood or underestimated the overall cost of living,” Brooke said.
Consider renting first. This allows you to get to know the area and neighborhoods. It also helps you link up with the expat community (if it exists), and learn about home pricing.
“Many times you’ll find two levels of prices — one for the out-of-towners and one for the locals,” Hodges said. “Someone might come in and think, ‘this $300,000 home is dirt cheap,’ and what they don’t understand is that the local would have paid $90,000 for it. Then it’s difficult to leave because you may not get what you paid for it.”
Renting also lets you suss out whether you truly like the area, and how much you miss extended family.
Investigate medical costs. Sure, when you retire abroad you are (presumably) in excellent health. But what about when you turn 80? Or 90? Or when you have a major health event?
“A key consideration is your health in older age, how you will manage, any insurance considerations, as well as reliance on another country’s system for elderly care,” Tully said. “It’s a potential minefield.” You may find that you are retiring in a country where it’s cheaper to hire your own private nurse than to return home and pay for nursing home care. But keep in mind, also, that the nurse may not speak your language. These are all things to think about. “Some people find that failing health puts pressure on them to return to the UK,” Tully said.
Consult a professional. Retiring abroad could have tax consequences, as well as impact any government benefits you receive. For instance, Americans who retire outside of the US will still owe US federal and state taxes on withdrawals from pre-tax retirement accounts, such as 401(k)s and IRAs. (Tip: Move to a US state with no income taxes before moving abroad and you’ll only have to deal with the federal tax bill.)
Canadians who live outside Canada for more than half of the year give up access to the country’s universal healthcare system. Brits who retire elsewhere can receive their state pensions — but they’ll only receive the yearly increase if they settle in another part of the European Economic Area or in a country that has an agreement with the UK to allow increases. You may also find that you are taxed in both countries, which could decrease your cash flow dramatically.
Think about your family. Factor return trips to see your loved ones into your budget. “The family pull is very strong, and a lot of people don’t understand it until it actually happens to them,” Hodges said.
Do it later: Leave some financial wiggle room. “The first few years of retirement tend to be expensive even if you are staying at home,” Brooke said. “Add to this the costs of moving, setting up new accounts and utilities, enjoying all the new local restaurants, going to events to meet new people, and you may overspend in the first few years.”
Don’t move all your money right away. “I would be very cautious before I moved my money or bought my investments offshore,” Hodges said. “In a lot of these third-world countries, it really is buyer beware and there are a lot of scams. Take your time. I have clients that live overseas and don’t have a bank account overseas. They do everything with debit and credit cards.”
Keep the right authorities informed. If you will be collecting a pension or benefits from your country of origin, make sure the right people know where to send checques.
Do it smarter: Keep an eye on the exchange rate. Currencies strengthen and weaken constantly, and that kind of change can affect your finances.
“Many people who were reliant on a single source of income really suffered when the euro strengthened significantly against the pound,” Brooke said. “Many weren’t prepared for this and had to return home.”
Have a plan. “Those clients that have a financial plan, working with a professional advisor tend to be those that will have the …best results,” Ulmer said. “I don’t think it’s wrong for anybody. The only person I would think it would be wrong for is somebody who decided to jump into it without the financial plan to support it.”