Before packing your bags to retire abroad
Does retiring on the cheap to a quaint rural town in Canada, tropical paradise or a bustling European or Asian city sound enticing to you? It seems that every year, intriguing articles and books recount how cash-strapped Americans make their savings last longer while living a glorious retired life in a low-cost locale overseas.
But how many Americans are actually retiring abroad? According to International Living magazine, the Social Security Administration reported that more than 600,000 Social Security checks were sent abroad in 2014, more than double the number in 2002. And that might understate how many people retire and live outside the U.S. because many retirees might continue banking domestically and access their accounts online.
With many baby boomers approaching their retirement years with limited financial resources, retiring somewhere with considerably lower living costs may sound appealing, particularly if it seems possible to live abroad on just your Social Security income.
So is retiring overseas for you? It could be, but keep in mind that the exciting articles from the retire-abroad industry often look like advertisements for vacations, rather than the realities of day-to-day living in another country.
That entire industry is trying to sell you something, whether it’s books, conferences, services or real estate. You’ll want to understand the difference between a vacation abroad and what it would take to actually live in another country, year-round, year after year.
Before committing much money and time to retiring abroad, do your homework. Make sure the money math works considering all of your expenses. Think about the long-term impact on your health and well-being. And have an end game in mind.
The day-to-day living costs overseas can indeed be much lower than what it costs to live in the U.S., if you take into account rent, utilities, food and transportation expenses. But it’s also essential to look beyond your monthly budget and consider other costs that may pop up, such as medical expenses.
Medical care: A top priority
When considering retirement overseas, medical care and insurance should be near the top of your checklist. That’s because, in most situations, Medicare won’t pay for medical services delivered outside the U.S., so you’ll want to investigate insurance coverage in your new host country.
In this case, you might be tempted to stop paying your Medicare premiums. Think again: What happens if you return to the U.S. for a visit and incur an illness or accident while here? Most likely, you’d be paying the full freight of your medical costs.
Think beyond how local medical services can help you with minor illnesses and injuries. Consider what would happen if you or a close family member had a serious illness that requires major surgery or a lengthy hospital stay. Would you feel comfortable obtaining such treatment in the new country? For many retirees, a serious illness isn’t a matter of if but when.
Consider what would happen when you reach an age at which you start contracting more serious conditions and you decide you’d rather obtain treatment in the U.S. or want to be close to friends and family who can help you. In this case, you can enroll in Medicare only during limited periods, and your Medicare premiums will increase significantly due to late payment penalties.
If you decide to keep paying Medicare premiums while living abroad, you’ll want to add those premium costs to your monthly budget.
Make sure your money can follow you
You’ll also want to investigate how you’ll access Social Security benefits and your savings while living abroad. Check this helpful website that shows how Social Security handles payments for U.S. retirees who live in most of the countries in the world.
Make sure you understand exactly how you’ll access your savings. Will you need a local bank account, or can you access U.S.-based accounts? If you set up a local account, be aware of U.S. reporting requirements that require you to report overseas bank and investment accounts, with severe penalties for noncompliance.
Pay attention to life’s details
When doing the budget math, be sure to factor in the costs for returning home for visits with family and friends. What about the unexpected travel costs for events such as family emergencies or funerals for friends and relatives?
Next issue to consider: spending lots of time away from your friends and family. Is that OK with you? And what will you do with your time once you’ve settled in? What interests can you pursue? Is working or volunteering important to you? Living somewhere new can be thrilling for the first few years while you’re exploring your new home and making all the necessary arrangements. But what happens next?
Have an end game
Finally, plan for the rest of your life. Do you think you’ll return to the U.S. at some point, or do you want to spend the rest of your life overseas? What happens if you or your spouse or partner needs advanced medical care that isn’t available in your host country? Do you have aging parents or siblings that could require a return home? What happens when a spouse or partner dies -- would you prefer to stay there or return home to be with close family or friends?
One strategy that could help address some of the challenges described here is to vacation for a few months, or even a year, in your desired location before choosing to leave the U.S. for an extended period. This can help you decide if you really want to live abroad.
You might think it sounds boring to have to think about these practical details, including all the things that can go wrong, when you really just want to pack your bags and start your exciting new life. But you’ll enjoy your big move more if you learn all you can first. The U.S. State Department has a very useful checklist that can help you think through all the issues.
Choosing a place to retire is about much more than simply finding an area with inexpensive living costs, low taxes, delightful weather and fun things to do. The trick is to design the life you want, then select the best place to retire that supports such a life.
