Retiring abroad is a dream for many, but it brings hidden personal and financial challenges.
Most people probably have at least one international destination on their bucket lists, but time and financial constraints prevent many from traveling, at least until retirement. Even then, it can be costly to arrange for a bunch of flights and travel accommodations while also paying for bills back home.
That’s one reason some seniors choose to move abroad in retirement instead. But while there are upsides, like the opportunity to immerse yourself in a different culture, there are three key drawbacks that make me reluctant to retire outside of the United States.
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1. Taxes can get more complicated
Relocating in retirement can result in double taxation on your savings. You’ll still owe U.S. taxes on money in traditional 401(k)s and IRAs, and you may owe taxes on some of your Social Security benefits as well. Plus, you could face taxes in the country you retire in, too.
If your tax bill winds up larger than expected, you could drain your savings prematurely. Then, you might be forced to take a job in your new country or return to the U.S.
You can avoid this by doing research ahead of retirement. Learn about the tax laws in the country you plan to retire in and consider consulting with a U.S. accountant and an accountant in that country to determine what you might owe based on your estimated annual retirement expenses.
2. It takes you far away from friends and family
Some people might be fine with moving thousands of miles away in retirement, but others — like me — would have a hard time with being that far away from family and friends. Of course, you can always make new friends in your new country, but you may still want a connection to those back home.
If you plan to make frequent visits back to the United States to visit friends or relatives, be sure to budget for this in your retirement plan. Think about more than just the cost of flights. You may also have to pay for a place to stay, vehicle rentals and rental insurance, and living expenses, like food costs.
3. It doesn’t always result in a lower cost of living
Some see retiring abroad as a way to enjoy a higher standard of living on their current savings. But it doesn’t always work out that way. Your money will go further in some countries than others, so you must plan carefully. In addition to taxes, you must consider the cost of groceries, transportation, healthcare, utilities, and insurance in your new country, to name a few.
You must also remember that moving abroad may limit your access to certain U.S. government benefits. For example, Medicare coverage is limited outside of the U.S. There are also a few countries the U.S. government generally doesn’t send Social Security payments. They are:
- Azerbaijan
- Belarus
- Cuba
- Kazakhstan
- Kyrgyzstan
- North Korea
- Tajikistan
- Turkmenistan
- Uzbekistan
If you won’t qualify for these benefits, you’ll need to make up for them another way. You might have to save more on your own to compensate for a lack of Social Security benefits. Or you might need to invest in a health insurance policy in your new country to pay for your medical bills.
You might not see these as major obstacles, and that’s fine. They’re manageable if you’re determined to retire abroad. Just make sure you have a plan for them. If any of the above issues never crossed your mind, now’s the time to revisit your retirement plan and make the necessary changes to achieve the retirement you want.