The Truth About Retiring Abroad

The Truth About Retiring Abroad

Television shows and magazine articles make it look easy to pack up and retire to Mexico, Panama, or similar foreign destinations where it's alleged that you can live like a king on just $30,000 a year, but achieving success by expatriating isn't that easy. Retiring abroad is actually very complicated and inappropriate for almost everyone. In fact, in all my years as a financial advisor, I have seen just one client retire to a foreign country — and he moved back less than a year later.

The financial media love to create lists of the best countries for retirement. They tell you the real estate is cheaper, your dollar will go further, and you won't have to pay taxes. None of this is necessarily true. Take, for instance, real estate. Chances are you don't want to move into a home in the middle of nowhere, no matter how cheap it is. You'd like amenities like restaurants, shops, and the presence of people who speak English. Maybe you'd like an ocean view, too. You're choosing a location you consider desirable, and chances are so have a lot of other people — and they've pushed up the prices in those communities. So it's not likely that you'll find an amazing bargain.

Even if you do get a great deal on real estate, your dollar won't necessarily go further. Currency values can fluctuate unpredictably. Locals often charge foreigners (that's you) more since they think Americans have more money. Then there's health care. Medicare doesn't cover you outside the U.S. When you need care, you'll either have to come back to the U.S., buy an outrageously expensive international health insurance policy, or pay for the cost yourself in a country that might have lower health-care standards than what you are used to.

It's true that becoming a citizen of a foreign nation enables you to avoid U.S. income taxes. But you'll have to start paying local taxes — and many nations charge rates for the wealthy that are far higher than U.S. rates (and unless you're moving to a place like Western Europe or Japan, you'll be among your adopted nation's wealthiest people). If the country doesn't assess taxes, then you can expect to experience a corresponding decrease in municipal services: Roads, police, firefighters, building, product and food safety, ambulances, and hospitals are all likely to be rare, poor, or nonexistent. But hey, the weather's great!

Even if you find a way to make the numbers work, you may be disappointed when you settle in if you moved solely for financial reasons. Your new country has a culture and lifestyle that are likely to be quite different from what you're used to. Shops may close at the owner's whim. Institutions like the bank and post office may not run as efficiently. There may not be accommodations for the disabled, such as wheelchair ramps and elevators. The food will be different, as will be sporting events, theater, and avocations. Most important of all, you will be thousands of miles away from your family, including the grandkids. Ditto for friends.

So the next time you're on vacation somewhere enticing and think it might be nice to live there, consider all the factors. There's a big difference between packing your suitcase for a week and packing up your life for a permanent move.

Originally published in The Truth About Money, updated February 2015

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