Where In the World Should You Retire?
From sandy beaches to surprisingly affordable living costs, the latest ranking of foreign retirement destinations by International Living magazine makes becoming an expat retiree look very attractive.
But is retiring abroad really as easy — and affordable — as it sounds?
If you're retiring abroad to indulge an adventurous streak, you're on the right track. Colombia, for instance, has made great strides in public safety and appears on this year's International Living list. But if you're looking to stretch your retirement dollars, you may be in for some surprises.
Paul Christopher, chief international investment strategist in the Advisory Services Group of Wells Fargo Advisors, has lived in several countries. "In Costa Rica, Panama, and Thailand, your dollar really will go further," he says, referring to three other nations on the list. "But there are hidden costs to living abroad."
The key to a good experience is to know yourself and your retirement needs and to get to know your destination. To pinpoint your best options, ask yourself these three questions:
• How healthy are you? If you leave the country, Medicare won't travel with you, and the quality of health care varies widely in developing countries. Some overseas destinations — such as Malaysia and Singapore — offer world-class facilities and services at a fraction of U.S. prices. Others, including some Central American countries, like Costa Rica, may not provide the standard of care that Americans expect. Also investigate whether your destination of choice has a national health plan that expats can join.
• How local do you want to go? Everyday goods that are cheap and plentiful in the U.S. may be in short supply — or very expensive — in developing markets. Christopher found that the prices of Coca-Cola and peanut butter were so high overseas that he gave them up while abroad. "The more willing you are to eat the local cuisine and enjoy local entertainment, the less money you'll need," he says. Also think about whether you'd be happiest in an English-speaking country, like Belize, or just as comfortable learning the local language.
• How often do you plan to return home? If it's important to see friends and family, consider choosing a locale that's closer to home. The reason is obvious: Shorter trips are easier and cheaper. "A few long flights home during the year can really drive up expenses," Christopher says.
Drafting a Plan
Once you've decided to retire abroad, team up with your financial adviser and accountant to help you determine whether you have sufficient financial resources. Consider the following costs:
• Goods. Sales tax is much higher in European countries and often includes a value-added tax, or VAT, that can drive up the total bill by almost 20 percent. Gasoline can also be more expensive outside the U.S., and islands are notoriously high-priced places to shop. Also beware of duties on items you bring from home. "My wife sent me a winter coat when I was traveling in a former Soviet country," Christopher recalls. "Customs kept it for three weeks and charged a $100 duty. It was hardly worth more than that."
• Currency. Currency fluctuations are likely to change the underlying value of your nest egg, so Christopher suggests timing your withdrawals to get the best exchange rate for your dollars. Be sure to look at your portfolio with your financial adviser regularly to make sure you're making good use of the local currency exchange rates.
• Income taxes. In many countries, you'll be paying local as well as U.S. taxes on your income. In others, you'll find a decidedly favorable tax environment. For instance, several Latin American countries, including Belize, Costa Rica, Ecuador and Uruguay, don't charge tax on foreigners' retirement income. A few others have agreements with the U.S. that credit your U.S returns for taxes paid abroad. The upshot: Work closely with your accountant and financial adviser to weigh the tax consequences of moving to your chosen destination.
Finally, before you pack your bags, Christopher suggests meeting with your financial adviser to map out an appropriate income strategy that takes into account a range of factors, from your liquidity needs to the potential difficulty of managing a financial issue from abroad.
"Work with your FA to prepare a steady income stream that's as automatic as possible, even if it means regular withdrawals from a chunk of capital," he says. "Imagine how disastrous a break in cash flow would be, especially if you had to fly home to sort it out."
Living abroad during retirement requires more strategizing than it took to organize your summer vacation or sabbatical. But a smart approach will make for a smoother transition.
Wells Fargo Advisors does not provide tax or legal advice.
This article was written by Wells Fargo Advisors and provided courtesy of Jonathan Buoni, Financial Advisor, in Springfield, MA at 413-755-1171. Investments
in securities and insurance products are: Not FDIC-insured/not bank-guaranteed/may lose value. Wells Fargo Advisors LLC, Member SIPC, is a registered
broker-dealer and a separate non-bank affiliate of Wells Fargo & Company. ©2013 Wells Fargo Advisors LLC. All rights reserved.