Do you dream of retiring to a sunny, exotic locale where the dollar stretches further and every day brings a new adventure? It's an alluring proposition for many Americans who are choosing active retirements in places like South America or Europe or Asia.
Enough clients at Bryn Mawr Trust in Pennsylvania have broached the issue that Joe Costigan, director of equity research at the wealth management firm, says they've researched the ins and outs of overseas retirement so they can discuss possibilities with clients. "More people today are talking about it in part because connectivity has gotten better, and it's easier to stay in touch," he says. With an Internet connection, far-flung retirees can stay in touch with friends and family members (especially grandchildren) using video chat through Skype, FaceTime or Google Hangouts and by emailing photos and videos.
Still, while the idea is intriguing, it's not right for everyone. "It takes a certain kind of personality, a tolerance for novelty and challenge," says Dan Prescher, special projects editor at InternationalLiving.com and co-author of the recently released book "The International Living Guide to Retiring Overseas on a Budget." (He and his wife live in Ecuador.) "If you move abroad thinking you're going to [a cheaper version of the U.S.], that's not going work. If you're moving to a place you like, a culture you're interested in with better weather – those are the reasons that people should consider moving abroad."
Finding the right cultural fit is important for retirees moving overseas, as is understanding the financial realities of the decision. Here are some financial factors to consider.
1. Health care costs. Medicare does not cover medical costs incurred overseas, so some American retirees living in other countries plan Medicare runs back to the United States to see their doctors and then fly back to their adopted country, Prescher says. (Some veterans do this as well, although the Department of Veterans Affairs Foreign Medical Program may reimburse some medical expenses incurred while traveling or living abroad.) However, Prescher is quick to add that these trips may be unnecessary, as affordable, high-quality health care is available in most cities throughout the world, and many of the doctors have been trained in the United States or Europe, so they speak English.
Depending on your situation, you may be able to purchase private health insurance to cover you abroad or self-insure (meaning pay for your own) health care costs. Treatment for specialized health issues or chronic conditions is available in most places, but if you know you have a heart problem or anticipate needing surgery, research treatment options and costs before you go.
2. Cost and quality of living. Prescher suggests spending as much time as you can in the country where you intend to retire to get a feel for the local culture, and see if it's an environment you'd enjoy. "Try to do some research ahead of time," he says. "How much is your weekly grocery bill? Is it expensive to eat out? If you're wedded to certain foods, for instance, you can find out whether they're even available in another country."
Countries that have a drastically lower cost of living may come without some of the amenities many Americans expect. Costigan compares living in the United States to ordering off a prix fixe menu and living in other countries to ordering a la carte. The United States is a "relatively expensive country to live in, but security is somewhat guaranteed and food is going to be relatively safe," he says. "There are a lot of guarantees that are implicit with living in America. If you move to South America, you're not paying for guaranteed potable drinking water."
3. Return travel to the United States. If you plan on making trips to a doctor covered by Medicare or a VA hospital, you'll want to factor those travel costs into your retirement budget. Even if you plan to visit local doctors, you may need to return stateside to attend a grandkid's graduation or wedding, tend to a relative's affairs or any number of other reasons.
Gabrielle Redford, editorial projects manager for AARP, suggests finding out, "How inexpensive is it to get to and from where my family is or where my doctors are? That's a cost that you're going to want to consider." Keep in mind that last-minute travel, say for a funeral or to see a sick relative, may be pricier than a flight you've booked well in advance, especially if you're traveling during peak travel seasons. Living in a remote area may offer privacy and scenery, but getting to and from the doctor or an airport could prove challenging.
4. Currency fluctuations. In countries that use the U.S. dollar or peg their currency to ours, retirees shouldn't necessarily worry that the dollars they receive from Social Security or individual retirement accounts will lose value due to a variable exchange rate (you can generally still collect Social Security while living abroad, although your checks may be smaller if you also collect a foreign pension).
But in places where the U.S. dollar has worth due to a favorable exchange rate, that rate can fluctuate. "If you're going to live abroad, you risk that your dollar will underperform the foreign currency," Costigan says. "You can manage part of [this risk] by investing in the country where you're going to live. If you are going to live in Europe, increase your allocations to European equities and bonds."
5. Taxes. Moving out of the United States does not exempt you from filing a U.S. tax return, a fact that frustrates many expats. Some countries have tax treaties with the U.S., so you can avoid paying income tax in both countries (often, you'll pay the higher jurisdiction's taxes). However, these nations may tax investment income or IRA distributions differently than in the U.S. or have different rules around these vehicles. Redford advises people considering a move to consult a local tax attorney rather than rely on tax information online or from other expats.
"If you plan on buying a home in another country, think about property taxes," she adds. "Some European countries also have [value-added tax], which is basically a sales tax but more expensive than what we're used to paying."
While it may seem complicated, the experience can be ultimately rewarding. As Redford says, these are the "compromises that you make for being able to live in a different culture and experience adventures that you might never experience in the United States."