Retirement is one of the most exciting phases in a person’s life, and for good reason: Suddenly, for the first time in decades – or maybe even ever — all your time is yours. It’s an opportunity to try different things, embark on new adventures, or simply just relax for once.
But where should you spend your time embracing the luxury of retirement? While plenty of people opt to stay in the same place, others seek more retiree-friendly climates when seeking their best place to retire. Some even decide to make the most daring move possible and retire abroad.
There are so many reasons why making your change of scenery an entirely new country may make sense for you when making your plans, but it’s not a move that will work for everyone.
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Consider these pros and cons of retiring abroad.
Pro: Experiencing a new culture can be a great adventure
There’s something so fun and thrilling about being in a new environment — new sights to see, new foods to try, new people to meet. It can completely reorient your world to experience so many new things. Plus, the efforts of learning another language and adapting to unfamiliar cultural customs are great ways to keep your mind sharp and engaged when you don’t have work to focus on.
Con: Dealing with culture clashes can become a headache
Of course, for some people, the adventure of living in a new country gets dull fast. Not knowing the language or the culture can leave you feeling alienated and craving the ease and comforts of your homeland. You’ll need to consider whether you’d really like to embrace an unfamiliar culture or if you’d prefer just passing through on a trip.
Pro: The cost of living is much lower than in the United States
In general, you’ll find it’s more affordable to live outside of America these days.
“The U.S. is becoming extremely expensive on an international scale. As an example, the cost of living in NYC is twice as expensive as Florence, Italy, where I live,” explained Alex Ingrim, a private wealth manager at Chase Buchanan, who aids other Americans living in Europe with their financial planning. "Porto, a popular retirement destination in Portugal, is almost 65% cheaper to live in than San Francisco."
It’s certainly tempting to spend your retirement in a place where you can stretch your dollar further. After all, retirement does mean you have a finite amount of funds, and this lower cost of living will alleviate spending concerns. You can have a lot more fun in your retirement when you can actually spend on things you enjoy instead of the basics.
“The difference in affordability means that people can retire earlier, travel more, and have more experiences at a younger age than they would traditionally plan for,” Ingrim emphasized.
Con: There are amenities you get in the U.S. you may not get abroad
However, that level of affordability comes with a cost, Ingrim added. While you’re certainly spending less on your living situation, you’ll likely find yourself in a smaller home without many of the everyday luxuries common in the U.S. — including air conditioning, central heating, private outdoor space and up-to-date appliances.
Local infrastructure may not “be up to American standards” and it may be difficult for ex-pats to get used to the way local bureaucracies are run as well, meaning some will miss the convenience of life in America, even if it has its own price tag.
“While the U.S. is expensive, the amenities on offer and the ease of everyday administration are pretty unmatched,” Ingrim said.
Possible con: Tax liabilities
Depending on where you plan to retire, your tax responsibilities may become a massive setback. No matter where you are in the world, a U.S. citizen or U.S. green card holder needs to pay taxes — but you may find an extra tax burden exists where you live.
“It’s important to consider that you may have a tax liability to another country if you are considered a tax resident there. The typical expectations around the taxation of Social Security and Roth IRAs being tax-free may not hold true in your new country, Italy or Spain being good examples of this,” Ingrim said.
That’s why you need to find out beforehand exactly how you’ll be taxed upon a move by consulting with a lawyer: It’ll directly impact the amount of money you’ll actually have. You may find there isn’t much of a financial reward to moving, after all, when you're coughing up double the taxes.
So, naturally, you’ll want to identify places that don’t require you to pay more taxes than just your U.S. responsibilities. Ingrim says you should consider these options:
The bottom line on retiring abroad
We all dream of living a life abroad and starting an entirely new journey, and retirement may provide the perfect opportunity to do just that. However, you need to determine if it’s truly the right move for you: Will you enjoy the adventure of living within a new culture? Or will the issues associated with beginning anew be too much of a hassle?
You also need to figure out your finances and determine how much money you’ll really be saving when residing abroad — including whether your taxes will become too much of a burden if you move to your dream country. Before you go, make sure to speak with a tax lawyer based where you want to live, as well as other people based in that country to get a sense of what you can expect when you make the leap.
If it makes sense personally and financially for you to retire abroad, you may find this phase of your life more magical than you ever expected.
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