10 Steps to Retiring Abroad
By Aaron Crowe
Retiring abroad is a lifelong dream for many. There’s a good chance you’ll not only spice up your life with new sites and sounds, but you’ll also be able to extend your dollar a lot farther in lower cost countries such as Mexico, Nicaragua, Malaysia, and Thailand.
If you’ve been smart enough to contribute to a retirement account for most of your working life, the dream can turn into reality. And if you haven’t been smart enough to save for retirement, then retiring abroad might be the only possible solution to afford the rest of your life.
Before you get your passport in order and start packing, there’s a long road of preparation to see if moving abroad is the right decision for you. Here are some points to consider.
Retiring abroad checklist
1) Try before you buy: Visiting areas around the globe where you may want to retire should be at the top of your to-do list before making the move. Perhaps you visited Thailand in your 20s and thought it was great. But things change over a 30-40 year time span, including yourself. The heat and pollution you didn’t mind as a young buck might just be a little too much for you now. If you can afford to visit for a few weeks, then do it.
While there, check out real estate prices and other livable factors that we’ll discuss below. Also check out the things that attracted you there in the first place: weather, activities, customs, peer groups, food and walkability. If you want to live near a beach, for example, look into condo prices nearby.
2) Rent first: Moving abroad isn’t always permanent. You may decide after a few months that your new homeland isn’t for you. A wiser move is to rent first to test out the neighborhood. It generally takes at least six months to get an idea of your surrounding area. Only then should you consider buying.
Even if you decide to stay there long-term, renting may be a cheaper option that can provide flexibility if you decide to move someday or decide that moving abroad isn’t for you. Who knows, you might even want to move to another country during retirement. Research the local rental customs as well. For example, in some countries it is common practice to pay for a full year of rent up front. So know what you’re getting yourself into in advance.
3) Health insurance: Since Medicare doesn’t pay for health care outside of the United States, you may have to buy health insurance or pay out of pocket for health care in other countries.
Find out if the country you’re considering is known for quality medical care. Some countries allow retirees who have established residency to participate in their national health plans, according to the book “Patients Beyond Borders,” a guide to finding affordable health care outside the U.S when moving abroad.
U.S. citizens who live outside of the country for at least 330 days in a year are considered residents of that country and aren’t required to have health insurance as mandated by the Affordable Care Act. However, U.S. citizens living abroad who don’t have health insurance could be fined.
To avoid the fines, you could either buy minimum coverage or, if you qualify for Medicare, you won’t risk the fines because Medicare qualifies as minimum essential coverage.
4) Language: While much of the world speaks English, you’ll only help yourself by learning the local language. Besides spending several months getting the basic phrases down through your favorite online language resource, consider renting a couple TV shows or movies in the local language to get more accustomed to their style.
In addition to learning the language, spend some time studying the city’s map and major landmarks so you’re able to hit the ground running. The last thing you want to do is not speak the language and not know where you’re going.
5) Cost of living comparison: Comparing the cost of living of your hometown to your new global city will show you how far your dollar will go. Create a spreadsheet comparing the cost of rent, food, and transportation between your top five cities under consideration.
Singapore is the world’s most expensive city to live in 2014 according to a cost of living survey by The Economist. The other nine most expensive cities to live in 2014 include: Paris, Oslo, Zurich, Sydney, Caracas, Geneva, Melbourne, Tokyo, and Copenhagen, so try and stay away.
The cheapest cities to live in are Mumbai, India; Karachi, Pakistan; New Delhi; Kathmandu, Nepal; and Damascus, Syria according to the survey. But like everything, things are cheap for a reason. It’s up to you, the intrepid retiree to find something in the middle that makes the most sense.
South America and places in Southeast Asia, such as in Thailand, are popular among American expats. For less than $1,500 per month, you can live a comfortable lifestyle in Thailand. (See graphic at bottom)
6) Transportation: Unless you really like driving in a foreign country, where driving rules can be different than the U.S., you’ll likely want to live somewhere that has good public transportation. The cost of cars can be sometimes triple the cost back in America due to hefty important tariffs.
The London Underground is known as one of the best subway systems in the world, called The Tube. How often does the subway system you’re considering run? Does it run 24 hours a day like the Copenhagen Metro does? Is it as clean as Hong Kong’s? Does it have the technology (heated seats, Wi-Fi) that Seoul does? Or is the public transportation expensive and relatively non-existent like San Francisco’s?
7) Leisure activities: The lack of American sports abroad is one of the biggest disappointments for expats. Instead of American football, you’ll be relegated to soccer or rugby. If you’re a college basketball fan, you’ll unlikely be able to catch the March Madness action we so love here in the States.
But when retiring abroad, most people think of swimming in the ocean, relaxing next to the pool, going on a hike, lounging at a sidewalk cafe, or exploring new sites. It’s best to find out the local festivities and traditions before going. If you can’t dance on a religious holiday, and dancing is your thing, you may want to look elsewhere. Understanding seasonal weather patterns is also important since some countries experience heavy droughts or monsoon seasons.
8) Taxes: This isn’t a fun part of moving abroad, but paying taxes is part of life. If you continue having income as a U.S. citizen, the IRS still expects you to pay U.S. taxes, no matter where you live. Some Americans are renouncing their U.S. citizenship to avoid paying taxes.
U.S. citizens or resident aliens of the United States who live abroad are taxed on their worldwide income, but they may qualify for an income exclusion for up to $97,600 for 2013, according to the IRS. Your new country’s tax laws will still apply, and any foreign taxes you pay may be allowed as deductions on your U.S. tax return.
9) Safety: The political stability of a country is a major part of your safety as a foreigner living in another country. Recent government upheavals in Venezuela, for instance, may put you off moving there.
Also look up a city’s crime index to determine your chance of being mugged or killed overseas. Caracas, Venezuela, for example, has the fifth highest crime index in the world in 2014, above Detroit and Karachi, Pakistan.
10) Finances: Even if you’ve saved enough for retirement and expect to be able to afford the cost of living when moving abroad, living the expat life can still turn out to be more expensive than planned. Perhaps you join a country club, hire a maid, and then a cook since labor is relatively cheap. Pretty soon, you’re blowing through your budget due to lifestyle inflation.
Just because you’re abroad doesn’t mean you shouldn’t continuously stay on top of your finances.
Sacramento vs. Chiang Mai
The city of Chiang Mai, Thailand, was chosen as one of the world’s best places to retire by “Live and Invest Overseas” magazine, mainly for its affordability. When compared to Sacramento, California, one of the most affordable cities in the country, Chiang Mai still looks dirt cheap!
A cost of living comparison between the two cities shows that consumer prices including rent are 58% lower in Chiang Mai, and local purchasing power is 74% lower than in Sacramento. You’d need about $1,727 a month in Chiang Mai to maintain the same standard of living that you can have in Sacramento for $4,200, assuming you rent in both cities.
If you’ve still got a little bit of adventure in you, and you don’t mind being far away from family, retiring abroad might be a fantastic choice. The median American household income of $52,000 a year puts you in the top 10% of income earners in the world. Why not leverage your buying power for a more comfortable retirement overseas?
This story originally ran on the Personal Capital blog.