Many Americans dream of spending their retirement years in an exotic location, such as Europe or South America. While the attraction of beautiful scenery, a new culture and exciting activities can be a strong pull, retirement planning for an overseas location can be more challenging than relocating domestically. The challenges of learning about exchange rates and real estate purchases can leave significant room for financial missteps. However, as with any new venture in life, the key to a successful retirement abroad is careful planning.
Perhaps one of the largest mistakes a person can make about retiring abroad is choosing a location without spending extensive time in the region. While a vacation can be enough to spark interest in a location, the decision to move there may require travelers to spend a period of weeks over several years to learn the idiosyncrasies of a country. Information about the politics, weather, crime rates and economy can - and should - be researched online. However, spending a great deal of time in the region can tell you if you really enjoy the culture, can afford the living costs, and have access to all the services and amenities you seek in retirement.
Another common misstep that can carry heavy financial ramifications is focusing solely on exchange rates rather than the overall cost of living. Many people who relocate abroad purposely choose a region that offers a favorable exchange rate. However, the global markets are continuing to shift as many nations strive to recover from the economic crisis and unemployment that shook the international community. As a result, exchange rates are in a constant state of fluctuation, which does not give an accurate picture about a nation's affordability. Instead, workers nearing retirement should look to housing costs, transportation, food and medical care expenses as a barometer of affordability.
Don't forget about taxes
Short of renouncing your U.S. citizenship, you will still be required to pay U.S. taxes when you retire abroad, a cost that should always be factored into your retirement plan. If you still own assets in the United States, you will be required to pay taxes on those as well. For this reason, adults are advised to meet with their tax preparer to discuss the liabilities and processes involved with managing taxes after retiring overseas.
Spending your years abroad can be a once-in-a-lifetime experience. To avoid running into issues that may impact your retirement savings, well-being or happiness, do your research before making the decision to relocate overseas.