Many people are struggling in the current economic climate to figure out how to get their financial affairs in order to make it possible to realize the retirement overseas they’ve dreamed about. Here’s a five-step program to get from wherever you are today to the retirement overseas that you deserve.
Step 1: Assess your wealth. How much money would you have to fund your retirement in a new country if you sold everything? This amount includes the value of your IRA, 401(k), any real estate you own, your brokerage accounts, vehicles, collectibles, antiques, coins, precious metals, and insurance policies. What would all that amount to if you liquidated it at today’s value? Add to that figure any cash deposits you have on hand.
Step 2: Figure your monthly cash flow. Once you’ve calculated the total amount of capital you could have to put toward funding your overseas retirement adventures, the next step is to convert that lump-sum into a monthly overseas retirement budget.
The easiest way to think through affording a new life in a new country is on a monthly basis. To do this, assume that you’ll convert your lump-sum retirement capital into a diversified portfolio that generates enough interest and dividend income to allow you to afford the overseas retirement lifestyle you want.
How much is enough? A retirement calculator like Firecalc can help you find out. Using a database of stock and bond returns over the past century, a tool like Firecalc can walk you through identifying the variables and putting together the pieces of your retirement planning puzzle. You plug in how much money you have, how much Social Security or pension income you’re expecting (and when), and how long you expect to live. Then, with Firecalc’s help, you can determine how much you’ll have to spend wherever you’re dreaming you would like to retire.
Step 3: Identify your retirement style. Are you considering retiring overseas full-time or for only part of the year? Are you a prospective snowbird, who is searching for somewhere tropical and sunny where you could escape winter back home each year? Maybe you could be a wandering snowbird—a retiree interested in escaping to a new and different sun-drenched destination each winter. Or perhaps you’d like to follow the seasons, spending time in three or four different places each year. The most extreme strategy is what has become known as perpetual retirement, meaning you have no home base. You move around the globe as your wanderlust and your budget allow.
These are very different retirement styles, and each comes at a different cost. Maintaining a base in the U.S. can be very expensive. Maintaining three or four bases in favorite locales where you’d like to be able to return regularly costs even more.
Step 4: Decide whether you want to go local in your new life overseas. This decision can have more to do with the cost of living in your new home than any other. Not everyone is prepared to settle in a locals-only neighborhood where you would have to learn to speak the local language, shop at the local markets, and where you might be completely outside your comfort zone. A life among the locals in a small mountain town in Panama or an ancient village in southwestern France will be dramatically more affordable than one in Panama City or Paris, but this life is not for everyone.
Be honest with yourself. If you wouldn’t be happy without English-speaking neighbors, U.S.-style grocery stores, big-city infrastructure, a doorman, and lots of options for the kind of nightlife and recreation you’re used to back home, don’t try to go local. An international life would be a better fit for you. Find a place where you can afford it.
Step 5: Understand the real costs of retiring overseas. The biggest expenses in any retirement budget are housing, health care, transportation, food, and utilities. If you’re able to purchase and pay up-front for a new home in your chosen overseas retirement haven, you can virtually eliminate your housing cost. What would remain would be the costs of repairs, maintenance, and property tax, if it’s charged in the place where you would be living. Depending on the size of your retirement nest egg, buying a new home abroad can be a prudent strategy. Sell your big house in the U.S. and buy a small one in a place overseas where property values are modest.
The cost of health care can be a combination of health insurance and medical care. I know many retirees overseas who have chosen to go without health insurance, because the cost of medical care where they’ve retired is so low. This isn’t as crazy an option as it may seem at first. However, if you decide to opt out of health insurance, you’ll want to set aside some funds of your own as a kind of emergency major medical plan.
The cost of transportation can be controlled by retiring somewhere where you don’t need a car and where you can get to the places you’d want to go on a regular basis on foot or using public transportation.
Your monthly food budget will have a lot to do with how you shop. Going local in your retirement lifestyle can translate into many advantages, including a greatly reduced grocery bill each month. In Panama City, for example, where I’ve been living for the past 3½ years, we can shop at the farmer’s market and walk away with four big sacks of fresh, locally grown fruits and vegetables and locally raised beef, chicken, and fish for less than $25. Or we can shop at the U.S.-style Riba Smith grocery store, where four bags of branded and prepared foods can cost $300. Panama City is one place where you can get any kind of food you might want if you’re willing to pay for it.
Your cost of utilities can also be highly controlled, depending on how local of a lifestyle you’re interested in adopting. For example, we run our air conditioning 24 hours a day, 7 days a week, but our local Panamanian friends do not. Where you live also plays a role in utility costs. In the interior of Panama, in the mountains, you could live comfortably without air conditioning at all.
Kathleen Peddicord is the founder of the Live and Invest Overseas publishing group. With more than 25 years experience covering this beat, Kathleen reports daily on current opportunities for living, retiring, and investing overseas in her free e-letter. Her book, How To Retire Overseas—Everything You Need To Know To Live Well Abroad For Less, was recently released by Penguin Books.